UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 _______________
 FORM
10-K
 (Mark
One)
 [X]   ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the Fiscal Year Ended December 31, 2009
 or
 [  ]   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the transition period from _______________ to _______________.
 
 Commission
File Number 000-23213
 YOUNG
INNOVATIONS, INC.
 (Exact
name of registrant as specified in its charter)
 
 Missouri
            43-1718931(State
      or other jurisdiction
              of
      incorporation or organization)
            (I.R.S.
      Employer Identification No.)13705
      Shoreline Court East,
            63045Earth
      City, Missouri
            (Zip
      Code)(Address
      of principal executive offices)
 
 Registrant's
telephone number, including area code: 314-344-0010
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Common
      Stock, $0.01 par value per share
            The
      Nasdaq Stock Market LLC(Title
      of class)
            (Name
      of each exchange on which
registered)
 
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No [X]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]  No [ ]
 
 Indicate
by check mark whether the registrant had submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes [ ]
No [ ]
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [ ]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 (Check
one):  Large accelerated filer  [ ]  Accelerated
filer  [X]  Non-accelerated filer  [ ] Smaller
reporting company [ ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes [ ] No [X]
 
 The
aggregate market value of the registrant's Common Stock held by non-affiliates
based on The Nasdaq Global Select Market closing price as of June 30, 2009 (the
last business day of the registrant's most recently completed second fiscal
quarter), was approximately $109 million. (For purposes of this calculation
only, directors and executive officers have been deemed
affiliates.)
 
 Number of
shares outstanding of the registrant's Common Stock at February 28,
2010:
 
 7,974,261
shares of Common Stock, $0.01 par value per share
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 Portions
of the registrant's definitive Proxy Statement to be filed for its 2009 Annual
Meeting of Stockholders (the “2009” Proxy Statement”) are incorporated by
reference into Part III of this Report.
 
  TABLE OF
CONTENTS
 PART
      IItem
      1. BusinessItem
      1A. Risk FactorsItem
      1B. Unresolved Staff CommentsItem
      2. PropertiesItem
      3. Legal ProceedingsItem
      4. ReservedPART
      IIItem
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity SecuritiesItem
      6. Selected Financial DataItem
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of OperationItem
      7A. Quantitative and Qualitative Disclosures About Market
    RiskItem
      8.  Financial Statements and Supplementary
  DataItem
      9. Changes in and Disagreements With Accountants on Accounting and
      Financial DisclosureItem
      9A. Controls and ProceduresItem
      9B. Other InformationPART
      IIIItem
      10. Directors, Executive Officers and Corporate
  GovernanceItem
      11. Executive CompensationItem
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder MattersItem
      13. Certain Relationships and Related Transactions, and Director
      IndependenceItem
      14. Principal Accountant Fees and ServicesPART
      IVItem
      15. Exhibits and Financial Statement
  Schedules
 
  2
  
 PART
I
 
 Item
1. Business (All $ amounts are noted in thousands).
  General
Overview
  Young
Innovations, Inc. and its subsidiaries (“the Company”) develops, manufactures
and markets supplies and equipment used by dentists, dental hygienists, dental
assistants and consumers.  The Company's product offering includes
disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes,
dental micro-applicators, panoramic X-ray machines, moisture control products,
infection control products, dental handpieces (drills) and related components,
endodontic systems, orthodontic toothbrushes, flavored examination gloves,
children's toothbrushes, and children's toothpastes.
  The
Company’s manufacturing and distribution facilities are located in Missouri,
Illinois, California, Indiana, Texas, Wisconsin and Ireland.
  The
Company markets its products primarily in the U.S.  The Company also
markets its products in several international markets, including Canada, Europe,
South America, Central America and the Pacific Rim.  International
sales represented approximately 17% of the Company’s total net sales in
2009.
  The
Company is a Missouri corporation with its corporate headquarters located at
13705 Shoreline Court East, Earth City, Missouri 63045, in the St. Louis,
Missouri metropolitan area; its telephone number is (314)
344-0010.  The telephone number for investor relations is(312)
644-4174.
  Background
  The
Company was founded as Young Dental in the early 1900s.  As one of
many small suppliers to the dental profession, Young Dental’s strength was
manufacturing consistently reliable dental products.  As dentistry
evolved, Young Dental employees worked with practicing dentists and academics to
identify clinical problems.  Young Dental staff used their engineering
and manufacturing expertise to create solutions to those
problems.  Young Dental established a strong reputation and leading
market position in disposable and metal prophy angles, the core products
utilized by the dentist in the typical biannual teeth cleaning
treatment.
  In 1995,
following the acquisition of The Lorvic Corporation, the Company incorporated as
Young Innovations, Inc. in the state of Missouri.  Since then, the
Company has acquired a number of complementary businesses, and introduced a
variety of new products.  Through these acquisitions and new product
introductions, the Company has expanded its preventive and infection control
product offerings, and entered a number of new product areas, including dental
diagnostic imaging, handpieces, home care products, and
endodontics.  The Company believes its continued commitment to
providing innovative products to meet the evolving needs of dental professionals
has earned it a reputation for quality, reliability and value.
  Business
Strategy
  The key
elements of the Company’s strategy are:
  
 ·
            Enhance and Expand Customer
      Relationships.  Enhancing and expanding customer
      relationships are fundamental components of the Company’s
      strategy.  By understanding and responding to the needs of
      distributors, clinicians and patients, the Company seeks to serve a
      broader customer base by extending the reach of its existing products to
      new customers and new markets.
 ·
            Improve Operating
      Efficiency.  The Company strives to reduce costs and
      rationalize expenses across its operations in an effort to maximize
      profitability and better serve its customers.  In order to
      realize operating efficiencies, the Company seeks cost savings through
      manufacturing and process improvements, administrative and marketing
      synergies, and strategic facility
  consolidations.
 ·
            New Product Development and
      Acquisitions.The Company brings products to market
      through two methods: internal product development and acquisitions.
      Internal product development focuses on evolutionary changes to its
      existing product lines to enhance patient care, increase patient comfort
      and improve practice productivity. The Company has typically entered new
      product categories through acquisitions. The Company intends to pursue
      acquisition opportunities that increase the breadth of its product and
      service offerings, enable entrance into attractive new markets, and
      enhance the growth and profitability of the business. The Company
      continually evaluates acquisition opportunities and has a proven track
      record of successfully acquiring and integrating acquired businesses. The
      following table provides a summary of the Company’s acquisition
      history:
 
  
 3
  Select
Acquisitions
 Company
      Name
            Acquisition
      Year
            Key
      Product AdditionsThe
      Lorvic Corporation
            1995
            Infection
      control productsDenticator
      International, Inc.
            1996
            Popular-priced
      disposable prophy anglesPanoramic
      Corporation
            1998
            Panoramic
      X-ray equipment and suppliesAthena
      Technology, Inc.
            1999
            Dental
      handpieces and related componentsPlak
      Smacker, Inc.
            2000
            Home
      care products and flavored glovesBiotrol
      and Challenge
              (subsidiaries
      of Pro-Dex, Inc.)
            2001
            Infection
      control products, prophy pastes and other preventive
    productsObtura
      Corporation &
              Earth
      City Technologies, Inc.
            2003
            Endodontic
      productsD&N
      Microproducts, Inc.
            2006
            Panoramic
      X-ray equipmentMicrobrush,
      Inc. and Microbrush International Ltd.
            2006
            Dental
      micro-applicators
  Products
  The
Company’s $97,737 in sales for 2009 was derived from the manufacture and
distribution of the products described below.  The Company offers many
different products which fall within one of two general categories; consumables
and diagnostics.  Consumables consist of preventive, infection
control, micro-applicators, home care and endodontic
products.  Diagnostics consist of X-ray machines and
supplies.  Revenue from consumables was $88,381, $87,432 and $83,376
for 2009, 2008 and 2007, respectively.  Revenue from diagnostics was
$9,356, $11,711 and $14,026 for 2009, 2008 and 2007, respectively.
  Consumables:
  Preventive.The
Company believes it is a leading supplier of preventive products to the U.S.
professional dental market.  Preventive products include:
  ·
            Prophy
      Angles.  The Company offers a broad line of prophy
      products.  The prophy angle, in combination with prophy paste,
      is used in the typical biannual teeth cleaning treatment that helps remove
      plaque and polishes teeth.  The Company offers a variety of
      pre-assembled Classic and Contra disposable prophy angles with cups or
      brushes attached under both the Young Dental (premium-priced) and
      Denticator (popular-priced) brand names, as well as through private-label
      relationships.  The Company believes it is a leading U.S.
      manufacturer and distributor of disposable prophy angles, with its
      extensive line of prophy products that suit the wide variety of customer
      needs and desires.
 
 The
Company also offers metal prophy angles, which are sealed to help prevent damage
to the internal components of the angle and help it withstand repeated
sterilizations.  The metal prophy angles are marketed together with an
assortment of cups and brushes specifically designed to work together, which
encourages recurring purchases of these products.
  ·
            Prophy
      pastes.  D-Lish, Festival and ProCare are some of the
      brand names of the Company’s prophy pastes.   Most pastes
      are available in a variety of textures (grits) and flavors, and some are
      sold in powder form.  Important functional features of prophy
      paste include stain removal, flavor and splatter
  control.
  4
 ·
            Fluorides.  The
      Company has a variety of flavors of fluorides in gel
      formulation.   Fluorides are used to help prevent tooth
      decay.
  ·
            Handpieces and
      components.  Under the Athena Champion and Denticator
      brand names, the Company manufactures and markets low and high-speed
      dental handpieces.  Handpieces are used for teeth-cleaning and
      during restorative procedures, including removing decay during cavity
      preparation procedures.  The Company also provides repair and
      maintenance services for
handpieces.
  ·
            Moisture
      control.  The Company offers a variety of moisture
      control products, including Dri-Aid and Surg-O-Vac, used to remove and
      absorb saliva or liquids during a variety of common dental
      procedures.
 
 Infection
Control.The Company markets a broad line of infection control
products to the dental practice.  Standard infection control
precautions should be performed in accordance with Center for Disease Control
(CDC) guidelines for infection control in dental health-care
settings.  The Company’s products include:
  ·
            Surface
      disinfectants.  Surface disinfectants are used to clean
      surfaces in the dental operatory, such as a dental chair or countertop
      that may be contaminated with bioburden (microorganisms).  The
      Company offers products that are used to clean and disinfect these
      surfaces under the brand names BIREX SE and Opti-Cide 3.  BIREX
      SE, one of the leading liquid surface disinfectants in the U.S. dental
      market, is a one-step chemistry that cleans and
      disinfects.  BIREX SE is a concentrate that is mixed by the user
      with tap water and is cost-effective and easy to
      store.  Opti-Cide 3 is a ready-to-use disinfectant with a quick
      microbial kill time available in liquid and wipe
  forms.
  ·
            Evacuation system
      cleaners.  The evacuation system is designed to remove
      debris from the patient’s mouth during a dental
      procedure.  Vacusol and NeutraVac, the Company’s evacuation
      system cleaners, remove debris that collects in the evacuation
      line.  When used with the Company’s atomizer, the solution is
      mixed with room air and flows through the evacuation lines.  Due
      to the unique air/liquid solution, the stress on the vacuum pump used in
      the evacuation system is minimized, which helps to extend pump
      life.
  ·
            Gloves and
      masks.  The Company offers many types of gloves,
      including latex, non-latex and powder-free gloves for dental
      professionals.  Flavored gloves, including cherry and grape, are
      often used by pediatric dentists to help provide a more positive,
      enjoyable experience for their younger patients.  Masks are used
      as a barrier by dental
professionals.
  ·
            Ultrasonic cleaning
      systems.  The Company, under the Healthsonics and Purit
      brand names, manufactures and markets a line of ultrasonic cleaning
      systems primarily used to clean and disinfect dental hand
      instruments.  The Company also sells a line of solutions and
      accessories that are used in connection with these
  systems.
  ·
            Instrument
      disinfectants.  The Company offers a full line of
      solutions designed for disinfecting dental instruments, including
      Multicide Ultra and Biozyme LT.  Certain of these cleaners may
      also be used with ultrasonic
cleaners.
  Micro-applicators.  The
Company manufactures a variety of disposable micro-applicators and bristle brush
applicators, under the Microbrush brand name, designed specifically for fast
application of minute amounts of material in areas of limited
access.  The products are used in dental procedures such as the
application of tooth whitening products, sealants, disclosing products,
orthodontic brackets, topical analgesics, bonding agents and other restorative
materials.
  Home
Care.The Company markets a line of products to dentists,
pediatric dentists and orthodontists that are sold or given to patients for use
at home.  The Company’s home care products include:
  ·
            Home care
      kits.  These kits are given to patients to encourage good
      oral healthcare habits and contain products such as brushes, wax to
      protect the inside of the cheek from irritation due to brackets, a timer
      to monitor brushing time and floss.
  ·
            Toothbrushes.  The
      Company offers a broad line of toothbrushes for many age groups, including
      infants, children, teens and adults.  The Company also markets
      an “all-in-one” brush for patients with braces.  One end of the
      brush is a standard toothbrush, while the other end features a conical
      brush designed for access between
brackets.
  Endodontic.The
Company sells endodontic products under the Obtura and Spartan brand
names.  Endodontics is the part of dentistry associated with the
treatment of tooth root, dental pulp and surrounding tissue.  The most
common therapy in endodontics is the root canal procedure, which involves
removing the organic root canal tissue and then filling the empty canal with
gutta percha, a rubber-like filling material.  Endodontic procedures
are performed by both general dentists and specialists
(endodontists).  The Company’s endodontic products
include:
  5
 ·
            Obturation.  The
      Obtura family of endodontic units is gun-type, heat-softened gutta percha
      delivery systems.  This unique dispensing unit allows the
      dentist to deliver a consistent flow of warm gutta percha directly into
      the canal, similar to extruding hot glue from a glue gun, facilitating the
      canal-filling procedure.   Additionally, the Obtura systems
      help practitioners effectively seal the canal, which is an important
      component of the root canal
procedure.
  ·
            Ultrasonic
      systems.  Under the Spartan brand name, ultrasonic
      scaling units and handpieces are marketed together with a variety of tips
      for different clinical applications. BUCtm
      tips are used for, among other things, gaining and refining access to the
      tooth root, while CPRtm
      tips are more often used in retreatment cases.  KiStm
      tips, used for microsurgery, offer a rough diamond coating for improved
      cutting.  The Company also offers additional ultrasonic tips for
      use in periodontal applications.
 
 Diagnostics:
 
 The
Company markets panoramic dental X-ray systems and supplies in the U.S. under
the Panoramic brand name.  The Company’s diagnostic products
include:
  ·
            Digital
      Imaging.  The Company offers two direct digital
      products.  The PC-4000 is an integrated digital panoramic
      imaging system which produces a high-quality image of the entire dental
      arch.    The 1000-DR, a cost-effective digital sensor
      kit, converts a film-based x-ray machine with a cephalometric
      attachment.  The cephalometric attachment is a positioning
      device that allows for repeated images of a patients mouth and skull in
      the same position over time.  This feature is important for
      diagnosis and treatment planning for orthodontists and oral
      surgeons.  The PC-1000 can be converted to a digital format in
      the field.
  ·
            Film
      X-ray.  The Company offers two analog or film-based
      products.  The PC-1000 is a fully-equipped panoramic X-ray
      machine which produces a high-quality, single-film image of the entire
      mouth.  The PC-1000/Laser-1000 provides full-mouth panoramic
      radiographs and cephalometric images that display the patient’s anterior
      skull profile allowing additional diagnosis and treatment planning for
      orthodontics and TMJ syndrome.
  ·
            Rental Program and
      Services.  The Company offers a program for dental
      practices to install and pay for a film type panoramic machine for a
      per-image fee.  As a result, dentists can obtain a relatively
      expensive piece of equipment without significant capital
      outlay.  In addition, the dentist has the option to purchase the
      equipment at a depreciated price during the rental period.  The
      rental program generates an inventory of used equipment that is factory
      refurbished and re-sold to dental offices.  The Company also
      offers service on all its panoramic X-ray systems through a network of
      more than 200 independent nationwide
  technicians.
  ·
            Supplies and
      Accessories.  The Company offers its customers dental
      X-ray supplies, including film, film cassettes and intensifying screens,
      processing chemicals, and darkroom
supplies.
 
  Sales
and Marketing of Professional Products
  The
Company markets its preventive, micro-applicator and infection control products
to dental professionals worldwide primarily through a network of non-exclusive
relationships with dental product distributors. All major distributors of dental
products in North America sell the Company's products, including Henry Schein,
Inc. and Patterson Companies, Inc., which accounted for 15.5% and 15.2%,
respectively, of the Company's sales in 2009.  In addition to
marketing through distributors in the U.S., the Company sells products directly
to dental providers and dental hygiene schools, Veterans Administration
healthcare facilities, and U.S. military bases.
  The
Company actively supports its distributor relationships with Company sales
personnel and independent sales representatives in the U.S. and Canada as well
as in countries outside of North America.  These sales representatives
educate the Company’s distributors about the quality, reliability and features
of its products.  The Company also advertises its products through
industry publications.  To supplement its other marketing efforts, the
Company provides product samples to dental professionals and exhibits its
products at industry trade shows.  In addition, the Company seeks to
generate interest in its products by providing information and marketing
materials to influential lecturers and consultants in the dental
industry.
  The
Company’s diagnostic, home care, endodontic and certain infection control
products are marketed in the U.S. and Canada directly to the end user, primarily
by direct mail, telemarketing, trade shows, and a limited amount of advertising
in trade and professional journals.  The Company also sponsors
seminars hosted by industry thought leaders.
 
 6
 Product
Development
  The
Company’s engineers and chemists are focused on developing innovative
professional dental products and are actively involved in improving the
Company’s manufacturing processes.  Frequently, these products are
designed and developed in response to needs articulated to the Company by dental
professionals.  For example, the Company designed a short prophy cup
for its line of prophy angles to allow for easier access to the back of the
patient’s mouth.  The Company holds various patents and trademarks but
does not consider its business to be materially dependent upon any individual
patent or trademark.
  Our
commitment to internally-developed products requires an investment of
resources.  The Company incurred research and development costs which
are expensed as incurred totaling $797, $796 and $738, for 2009, 2008 and 2007,
respectively.
  The
Company seeks to acquire product lines to strengthen its market
presence.  During the first quarter of 2009, the Company acquired the
rights to distribute a product line which expands our infection control
offerings.
 
 Manufacturing and
Supply
 
 The
Company manufactures most of its products and product components other than
certain infection control products, fluorides, children’s home care products,
orthodontic kits and related supplies, and examination gloves.
 
 Prophy and Related Products.The Company manufactures prophy and related products in its Earth City,
Missouri, and Brownsville, Texas facilities.  The primary processes
involved in manufacturing the Company's prophy and related products include
precision metal turning and milling, rubber molding, plastic injection molding,
component parts assembly and finished goods packaging.  In these
processes, the Company uses a variety of computer numerically controlled (CNC)
machining centers, injection molding machines and robotic assembly machines, and
continues to invest in new and more efficient equipment and production
lines.
 
 Pastes.The Company blends
and mixes all of its pastes at the Earth City, Missouri facility. The Company
also owns equipment used to form and die-cut expanded polyethylene foam and
extruded plastic into packaging materials, and equipment used to package its
products in a variety of container sizes, including prophy paste in unit-dose
containers.
 
 Micro-applicators.The
Company manufactures micro-applicators and related products in its Grafton,
Wisconsin and Dungarvan, Ireland facilities.  The primary processes
involved in the manufacture of these products include plastic injection molding,
application of adhesive and flocking, and packaging of finished
goods.  The Company uses injection molding machines and robotic
assembly machines in these manufacturing processes.
 
 Handpieces and
Components.The Company uses a variety of CNC machines to
manufacture a number of the components required to produce its high-speed and
low-speed handpieces in its Earth City, Missouri facility.  Certain
other handpiece component parts are sourced from a variety of Original Equipment
Manufacturers (OEMs).  The Company assembles and provides repair
services for its handpieces in its Earth City, Missouri facility.
 
 Infection Control Products.The Company manufactures and packages a variety of infection control
products, sterilants and cleaners, at the Earth City, Missouri
facility.  Additionally, certain of the Company’s infection control
products are sourced from domestic manufacturers.
 
 Diagnostic Equipment.
Diagnostic equipment is manufactured and assembled at the Company’s premises in
Fort Wayne, Indiana.  The Company also manufactures its own diagnostic
generators, a critical system component in our units.  Additionally,
the Company sources sensors for its digital diagnostic equipment from an
international manufacturer.
 
 Home Care
Products.  The Company sources most of its home care kit
components, toothbrushes, and examination gloves from manufacturers in Asia,
principally China, Taiwan, Malaysia, India and Vietnam.  Certain other
toothbrush and toothpaste products are sourced from domestic
manufacturers.
 
 Endodontic
Products.  Obturation and ultrasonic systems are manufactured
at the Earth City, Missouri facility.  A variety of components and
subassemblies are sourced domestically.
 
 7
 Supply.The Company purchases
a wide variety of raw materials, including bar steel, brass, rubber and plastic
resins from numerous suppliers. The majority of the Company's purchases are
commodities readily available at competitive prices. The Company also purchases
certain additional miscellaneous products from other manufacturers for
resale.
  Competition
  The
markets for the Company’s products are highly competitive.  The
Company believes that the principal competitive factors in all of its markets
are product features, reliability, name recognition, established distribution
network, customer service and, to a lesser extent, price.  The
relative speed with which the Company can develop, complete testing, obtain
regulatory approval and sell commercial quantities of new products is also an
important competitive factor.  Some of the Company’s competitors have
greater financial, research, manufacturing, and marketing resources than the
Company.  The Company’s competitors include: DENTSPLY International
Inc.; Danaher Corporation; John O. Butler Company; Instrumentarium; Planmeca OY;
StarDental, a division of DentalEZ Group; Procter and Gamble Co. and
Colgate-Palmolive Co.
  The
Company competes with manufacturers of both branded and private-label dental
products.  The Company believes it is a leading U.S. manufacturer or
distributor of prophy angles and cups, liquid surface disinfectants, dental
micro-applicators and obturation units designed for warm, vertical
condensation.
 
 FDA
Regulation
 
 The
Company’s products are subject to regulation by, among other governmental
entities, the U.S. Food and Drug Administration
(“FDA”).    To the extent the products are marketed abroad,
they are also subject to government regulation in the various foreign countries
in which the products are produced or sold.  Some of these regulatory
requirements and penalties for non compliance are more stringent than those
applicable in the United States.  They also vary from country to
country.
 
 Medical Device
Regulation.  Pursuant to the Federal Food, Drug, and Cosmetic
Act (“Act”), and the FDA’s implementing regulations, FDA regulates the
development, manufacture, sale, and distribution of medical devices, including
their introduction into interstate commerce, as well as their testing, labeling,
packaging, marketing, distribution, recordkeeping and reporting.  In
general, if a dental device is subject to FDA regulation, compliance with the
FDA requirements constitutes compliance with corresponding state regulations
through some states may have additional licensure and other requirements and may
conduct inspections of facilities on behalf of or in addition to inspections by
the FDA.  Medical devices are classified for FDA regulatory purposes
as Class I, Class II or Class III, depending on the degree of control necessary
to provide a reasonable assurance of safety and effectiveness for the labeled
use.  Currently, the Company’s dental device products are classified
as either Class I or Class II devices.  Class I devices are subject to
"general controls," such as labeling, good manufacturing practices (GMP), and a
prohibition against adulteration and misbranding.  Class II devices
are subject to general and "special controls," including premarket notification
(510(k)), and other general and device-specific requirements.  All of
the Company’s dental device products are subject to ongoing regulatory oversight
by the FDA to ensure compliance with, among other things, product labeling,
GMP/quality system regulation (QSR), recordkeeping, and medical device (adverse
reaction) reporting requirements.  The Company’s medical imaging
products as well as other products that emit radiation is also subject to
additional FDA requirements for radiation safety.  The Company’s
facilities are further subject to periodic inspection by the FDA, as well as
state and local agencies.  Failure to satisfy FDA requirements can
result in FDA enforcement actions, including product seizure, injunction, fines
and civil penalties and/or criminal or civil proceedings.  In the
medical device arena, the FDA may also request repair, replacement, or refund of
the cost of any medical device manufactured or distributed by the
Company.  The Company is also subject to state and local enforcement
action and/or penalties, which may be greater than those imposed by the
Act.
 
 Drug
Regulation.  The Company also markets drug products, such as
fluorides, which are subject to regulation by the FDA and the counterpart
agencies of the foreign countries where the products are sold.  The
FDA regulates the development, manufacture, sale, and distribution of drugs,
including their introduction into interstate commerce as well as their testing,
labeling, packaging, marketing, distribution, recordkeeping and
reporting.  In general, unless a drug product falls within an
over-the-counter (OTC) monograph, is generally recognized as safe and effective
for the labeled use, or is entitled to grandfather status, the drug must be
approved by FDA pursuant to an approved new drug application before it may be
legally marketed.  Drugs are also subject to post approval
requirements such as adverse event reporting, record keeping and reporting
requirements, cGMP manufacturing, advertising and promotion
requirements.  Manufacturing facilities are subject to periodic and
for cause inspections by FDA for compliance with FDA
requirements.  The Company also operates as a wholesale prescription
drug distributor in some states and is required to be licensed by individual
states, subject to minimum FDA requirements and additional state
requirements.  Failure to comply with the FDA’s drug regulatory
requirements can result in issuance of an FDA Form 483 Inspectional
Observations, Warning Letter, and/or other civil or criminal enforcement action
or penalty.  The Company is also subject to state and local
enforcement action and/or penalties, which may be greater than those imposed by
the Act.
 
 8
 Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA)
 
 Certain
of our infection prevention products are classified as pesticides and are
subject to regulation by the United States Environmental Protection Agency (EPA)
under FIFRA, and by various state agencies under the laws of those
states.  Generally, under FIFRA and state law, no one may sell or
distribute a pesticide unless it is registered with the EPA and each state in
which the product is sold.  Registrations must be renewed
annually.  Registration includes approval by the EPA of the product’s
label, including its claims and directions for use, which must be supported by
data.  EPA or states may at any time require additional testing to
determine whether a pesticide could cause adverse effects on the environment,
including people, and whether it is efficacious.  The pesticide laws
also require registrants to report adverse effects associated with their
products to the EPA and the corresponding state agency.  Failure to
pay annual registration fees or to provide necessary testing data, or new
information regarding adverse effects of product, as well as other conduct,
could result in fines and/or the suspension or cancellation of a pesticide
registration.  The Company’s facilities are subject to periodic
inspection by the EPA, as well as state and local agencies.  Failure
to satisfy EPA requirements can result in EPA enforcement actions, including
stop sale, use or removal orders, fines and civil penalties and/or criminal or
civil proceedings.  The Company is also subject to state and local
enforcement action and/or penalties, which may be greater than those imposed by
FIFRA.
 
 Environmental,
Health and Safety Matters
 
 Our
operations involve production processes and the use and handling of materials
that are subject to federal, state, and local environmental laws and regulations
relating to, among other things, solid and hazardous waste disposal, air
emissions, and waste water discharge.  We are also required to comply
with federal and state laws and regulations relating to occupational health and
safety.  If violations of any of these laws and regulations occur, or
if toxic or hazardous materials are released into the environment as a result of
our operations, the Company could be exposed to significant
liability.
 
 The
Company believes it is in compliance in all material respects with respect to
the laws and regulations applicable to it and its operations.
  Other
 
 During
the second quarter, The Company renewed its credit agreement which reduces the
borrowing capacity from $75,000 to $60,000, and expires in July
2012.  As of December 31, 2009, the Company had $13,979 in outstanding
borrowings under this agreement and $46,021 available for
borrowing.   The Company expects to fund working capital
requirements from a combination of available cash balances and internally
generated funds, and from the borrowing arrangement mentioned
above.
  Some
seasonality exists in the business driven by timing of price increases, rebate
incentives, tax incentives, and holiday buying patterns and
promotions.
  Employees
  As of
December 31, 2009, the Company employed approximately 400 people, none of whom
were covered by collective bargaining agreements.  The Company
believes its relations with its employees are good.
  Website
Access to Company Reports and Corporate Governance Materials
 
 The
Company makes available free of charge through our website, www.ydnt.com, (1) its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with the Securities and Exchange
Commission; and (2) the Audit Committee, Compensation Committee and Nominating
Committee charters and its Code of Ethics.  The Company’s website and
the information contained therein or incorporated therein are not intended to be
incorporated into this Annual Report on Form 10-K.
 
   9
  Executive
Officers of the Registrant
 
 The
executive officers of the Company, their ages and their positions with the
Company are set forth below.  All officers serve at the pleasure of
the board.
 
 Name
            Age
            Position
            Principal Occupation During Past 5
      YearsAlfred
      E. Brennan
            57
            Chairman
      of the Board, Chief Executive Officer and Director
            Chairman
      of the Board since October 2008 and Vice Chairman from July 2004 to
      October 2008, Chief Executive Officer since January 2004, President from
      July 1998 to July 2004, Chief Operating Officer from October 1997 until
      May 2002 and Director of the Company since August 1997.George
      E. Richmond
            76
            Vice
      Chairman of the Board and Director
            Vice
      Chairman of the Board since October 2008,Chairman of the Board
      from 1997 to October 2008, Chief Executive Officer from 1995 to 2002,
      Director of the Company since its organization in 1995, President of Young
      Dental Manufacturing Company ("Young Dental") (predecessor to the Company)
      from 1961 until 1997.Arthur
      L. Herbst, Jr.
            46
            President
      and Chief Financial Officer
            President
      since July 2004, Chief Operating Officer from May 2002 until July 2004,
      Chief Financial Officer from February 1999 until July 2004 and since
      February 2008, and Director from November 1997 to July 2004.Daniel
      J. Tarullo
            50
            Vice
      President
            Vice
      President of Business Development since July 2004, Director of Business
      Development from September 2003 to July 2004.Julia
      A. Heap
            35
            Vice
      President of Finance and Controller
            Vice
      President of Finance since May 2008, Corporate Controller since 2005,
      Assistant Corporate Controller from May 2002 until 2005.
 
 
 
 
 
  10
  
 
 Item
1A.  Risk Factors
 
 Forward
Looking Statements
 This
Annual Report (including, without limitation, Item 1 — "Business" and Item 7 —
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included herein
are "forward-looking statements." Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be
correct.  Forward-looking statements include statements which are
predictive in nature, which depend upon or refer to future events or conditions
and which include words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," or similar expressions.  These statements are
not guaranties of future performance, and the Company makes no commitment to
update or disclose any revisions to forward-looking statements, or any facts,
events or circumstances after the date hereof that may bear upon forward-looking
statements. Because such statements involve risks and uncertainties, actual
actions and strategies and the timing and expected results thereof may differ
materially from those expressed or implied by such forward-looking
statements.  These risks and uncertainties include, but are not
limited to, those disclosed in this Annual Report and other reports filed with
the Securities and Exchange Commission.
 
 The
Company makes no commitment to update these factors or to revise any
forward-looking
statements for events or circumstances occurring after the statement is
issued.
 
 At any
time when the Company makes forward-looking statements, it
desires to take advantage of the “safe harbor” which is afforded such
statements under the Private Securities Litigation Reform Act of
1995.
 
 Risk
Factors
 We have
identified the following risks and uncertainties that may have a material
adverse effect on our business, financial condition or results of operations.
Investors should carefully consider the risks described below, together with the
cautionary statement under the caption “Forward Looking Statements” described
above and other information contained in this Annual Report and our other
filings with the Securities and Exchange Commission before purchasing our
securities. Our business faces significant risks and the risks described below
may not be the only risks we face. Additional risks not presently known to us or
that we currently believe are immaterial may also significantly impair our
business operations. If any of these risks occur, our business, results of
operations or financial condition could suffer, the market price of our Common
Stock could decline and you could lose all or part of your investment in our
Common Stock.
 
 Acquisitions
have been and continue to be an important part of our growth strategy; failure
to consummate acquisitions could limit our growth and failure to successfully
integrate acquisitions could adversely impact our results.
 Our
business strategy includes continued growth through strategic acquisitions,
which depends upon our ability to identify potential acquisitions, the
availability of suitable acquisition candidates at reasonable prices and the
availability of financing on acceptable terms.  In addition, our
growth strategy is dependent upon our ability to negotiate and consummate
acquisitions and effectively integrate the acquisitions into our
business.  Acquisitions involve integrating product lines, employees
and manufacturing facilities and include risks relating to employee turnover and
sales channel tension.  We cannot be certain that we will successfully
manage all of these challenges and risks in the future and there can be no
assurance that our future acquisitions will be successful.  Failure to
consummate appropriate acquisitions would adversely impact our growth and
failure to successfully integrate them would adversely affect our
results.
 
 We operate in a
highly competitive industry and cannot be certain that we will be able to
compete effectively.
 The markets for our products are highly
competitive. We compete with manufacturers of both branded and private-label
dental products.  Some of our competitors have greater financial,
research, manufacturing, marketing and other resources which could allow them to
compete more successfully.  As a result we may not be able to achieve,
maintain or increase market share or margins, or compete effectively against
these companies.  In addition, new competitors are constantly entering
the markets in which we participate.
 
 
 11
 
 We
rely heavily on key distributors, and if any of them stop doing business with us
it would significantly impact our operating results.
 In fiscal
2009, approximately 31% of our sales were made through two
distributors.  If either of these two distributors were to materially
change the timing of their order patterns, our financial results in any given
short-term period could be adversely affected.   Additionally,
the loss of either distributor as a customer, or a material change in our
relationship with either distributor would have a material adverse effect on our
results of operations and financial condition until we find an alternative means
to distribute our products.
 
 The
strength of the dental market is impacted by general worldwide economic
conditions.
 The
Company’s success is dependant upon the demand for dental products, in
particular, and overall worldwide economic conditions, in
general.  In
2009, the Company was negatively impacted by the general worldwide economic
conditions that began in late 2008.  We cannot predict the timing or
duration of any economic slowdown or the timing or strength of a subsequent
economic recovery.
 
 If
we are unable to successfully manage growth, our results could be materially
adversely affected.
 The
Company is committed to growth in part through acquisition as well as
organically through the development of new products which results in increased
market share.  Our commitment to growth will continue to place a
significant strain on our management, administrative, operational, and financial
resources. In order to address these concerns, the Company is focused on
attracting and retaining key employees who possess outstanding talent for
achieving short and long-term objectives.  We will also have to
continue to consolidate our operations and improve and upgrade operational,
financial and accounting systems, controls and infrastructure as well as expand,
train and manage our employees. Our failure to manage the future expansion of
our business could have a material adverse effect on our revenues and
profitability.
 
 Changes
in standard of care relating to dental health may impact future
results.
 The
demand for dental products is impacted by the dental health care
standards.  If the industry standards were to shift to a standard of
care that changed the frequency or type of procedures performed or if
third-party insurance coverage were to substantially change, the market for our
Company’s products could be adversely affected.
 
 Changes
in the healthcare industry may impact future results.
 The
healthcare industry is in the process of undergoing significant changes in an
effort to reduce costs.  These changes may include legislative
healthcare reform.  Although the proposed legislation would increase
insurance coverage there is uncertainty as to the how this might impact
reimbursement rates to healthcare professionals.  We have no ability
to predict what the impact of new legislation might have for the dental industry
or our business.
 
 Our
business is subject to quarterly variations in operating results due to factors
outside of our control.
 Our
business is subject to quarterly variations in operating results caused by a
number of factors, including business and industry conditions, the timing of
acquisitions, the buying patterns of our largest customers, technology changes,
currency exchange rate fluctuations, and other factors beyond our control. All
these factors make it difficult to predict operating results for any particular
period.
 
 Our
future performance is materially dependent upon our senior
management.
 Our
future success is substantially dependent upon the efforts and abilities of
members of our existing senior management, particularly Alfred E. Brennan,
Chairman and Chief Executive Officer, and Arthur L. Herbst, Jr., President and
Chief Financial Officer, among others. The loss of the services of either Mr.
Brennan or Mr. Herbst could have a material adverse effect on our business. We
have employment agreements with each of Messrs. Brennan and
Herbst.  We do not currently have “key man” life insurance policies on
any of our employees. Competition for senior management is intense, and we may
not be successful in attracting and retaining key personnel.
 
 Difficulty
in obtaining goods and services from our vendors and suppliers could adversely
affect our business.
 We are
dependent on certain of our vendors and suppliers.  We believe we have
good relationships with and are generally able to obtain attractive pricing and
other terms from our vendors and suppliers.  However, if our raw
material products, such as resin, were to increase in price significantly, the
cost of manufacturing products would increase and our profitability may be
impacted.  In addition, if our raw materials were not available for a
period of time, this would impair our ability to obtain necessary materials
which could adversely affect our revenue.  When possible, we attempt
to have multiple sources for key materials and supplies.  If our
vendors and suppliers were no longer able to supply product, we could face
difficulty in immediately obtaining needed goods and services, which could
adversely affect our business for a temporary period.
 
 12
 Certain
of our products and manufacturing facilities are subject to regulation, and our
failure or the failure of our suppliers to comply with applicable laws and
regulations and obtain or maintain the required regulatory approvals for these
products could hinder or prevent their sale and increase our costs of regulatory
compliance.  In addition, there can be no assurance we will be able to
successfully reintroduce any products that may have been recalled.
 Our
ability to continue manufacturing and selling those of our products that are
subject to regulation by the United States Food and Drug Administration, the
Environmental Protection Agency, state, local or foreign laws or other federal,
state or foreign governmental bodies or agencies is subject to a number of
risks, including our ability to comply with existing laws and regulations and
ongoing requirements, the promulgation of stricter laws or regulations, or the
withdrawal of the approval needed to sell one or more of our
products.  We are also subject to regulation by the Occupational
Safety and Health Administration and the Securities and Exchange Commission,
among others.  With respect to certain products we purchase, our
ability to sell such products to our customers is dependent upon the supplier
complying with all applicable laws and regulations.  The failure of
the Company and/or our suppliers to comply with existing or future laws and
regulations could have a material adverse affect on our
operations.  The costs of complying with these regulations and the
delays in receiving required regulatory approvals or new laws, regulations, or
regulatory requirements adverse to our business may force the Company to
discontinue selling products, make expensive changes to be able to continue to
market existing products, make it more expensive and possibly prohibitive to
introduce new products, require the Company to recall products, increase our
costs of regulatory compliance or hinder our growth.  To the extent
that we recall products, there can be no assurance that we will be able to
timely and successfully reintroduce any products that may have been recalled
into the market.
 
 Technological
change could result in loss of market share, product obsolescence and dependence
on new products.
 Our
future success depends on the ability to anticipate and adapt to changes in
technology, industry standards and customers’ changing demands.  If we
do not timely acquire, develop, complete testing, obtain regulatory approval and
sell commercial quantities of new products in response to a technological change
or the changing demands of customers, we could lose market share and our
products could become obsolete.
 
 Loss
of intellectual property protection and related disputes could negatively affect
our results.
 Our
company utilizes copyright, trademark and trade secret laws, licenses and
confidentiality and non-disclosure agreements to protect our intellectual
property and proprietary technology.  There can be no assurance that
the steps taken to protect our intellectual property or proprietary technology
will be adequate or enforceable to prevent misappropriation.  In
addition, the cost of prosecuting and defending such actions can be significant
and have a material adverse effect on our results.
 
 We
rely upon others to assist in the education and promotion of our products, and
the loss of the participation of these individuals could adversely affect our
net sales.  Changes in the rules governing promotion of our products
might likewise adversely affect our sales.
 We work
with various dental clinicians to educate the dental community on the features
and benefits of our products. Some clinicians are a key component to our
strategy for growing our sales. The inability or unwillingness of one or more of
these clinicians to continue to assist us could negatively impact the sales of
certain significant products.  If new laws are enacted or new
regulations promulgated that restrict promotional communications about medical
products, this may likewise adversely affect our sales.
 
 We are subject to
potential product liability claims as a result of the design, manufacture and
marketing of our products.  Claims alleging product liability
may involve large potential damages and significant defense costs.  We
currently maintain insurance coverage for such claims but there can be no
assurance that our insurance coverage will be adequate or that all such claims
will be covered by our insurance.  A product liability claim could
adversely affect our reputation.  A successful claim against us in
excess of the available insurance coverage could have a material adverse effect
on our results.
 
 Item
1B. Unresolved Staff Comments.
 
 None.
 
  13
  Item
2. Properties.
 
 The
Company's principal facilities are as follows:
 
 
 Description
            Square Feet
            Location
            Owned/LeasedCorporate
      Headquarters and Manufacturing
            113,000
            Earth
      City, Missouri
            OwnedManufacturing
            12,000
            Brownsville,
      Texas
            OwnedOffice
      and Manufacturing
            48,200
            Fort
      Wayne, Indiana
            OwnedOffice
      and Manufacturing
            5,000
            Fort
      Wayne, Indiana
            Leased,
      on month to month termsOffice,
      Distribution and Manufacturing
            95,000
            Algonquin,
      Illinois
            OwnedOffice
      and Distribution
            33,000
            Corona,
      California
            OwnedOffice
            6,500
            Chicago,
      Illinois
            Leased,
      expires August 2011Office
      and Manufacturing
            40,400
            Grafton,
      Wisconsin
            Leased,
      expires July 2012Office
      and Manufacturing
            29,700
            Dungarvan,
      Ireland
            Owned
 
 
 The
Company believes that its facilities are generally in good
condition.
 
 Item
3. Legal Proceedings.
 
 The
Company and its subsidiaries from time to time are parties to various legal
proceedings arising in the normal course of business.  Management
believes that none of these proceedings, if determined adversely, would have a
material adverse effect on the Company’s financial position, results of
operations or liquidity.
 
 Item
4. Reserved.
 
  14
  PART
II
 
 Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 
 Market Prices and
Dividends
 
 The
Company’s Common Stock is listed on The Nasdaq Global Select Market under the
symbol "YDNT."
 
 The
following table sets forth the high and low closing prices of the Company’s
Common Stock as reported by The Nasdaq Global Select Market and cash dividends
declared during the last eight quarters.
 
 
 Market Price
            
            
            Cash Dividends DeclaredQuarter
            
            High
            
            
            Low2008First
            
            $
            26.59
            
            
            $
            16.56
            
            
            $
            0.04Second
            
            $
            21.34
            
            
            $
            15.35
            
            
            $
            0.04Third
            
            $
            22.80
            
            
            $
            18.97
            
            
            $
            0.04Fourth
            
            $
            19.58
            
            
            $
            9.48
            
            
            $
            0.042009First
            
            $
            16.97
            
            
            $
            12.42
            
            
            $
            0.04Second
            
            $
            22.38
            
            
            $
            14.79
            
            
            $
            0.04Third
            
            $
            26.41
            
            
            $
            21.90
            
            
            $
            0.04Fourth
            
            $
            27.71
            
            
            $
            22.78
            
            
            $
            0.04
 
 
 On
December 31, 2009, there were approximately 95 holders of record of the
Company's Common Stock.
 
 The
Company has paid quarterly dividends on its Common Stock since the third quarter
of 2003.
 
 Payment
of future cash dividends will be at the discretion of the Company's Board of
Directors and will be dependent upon the earnings and financial condition of the
Company and any other factors deemed relevant by the Board of Directors, and
will also be subject to any applicable restrictions contained in the Company's
then existing credit arrangements.
 
 
 Item
      6. Selected Financial Data.
 
 The
following table presents selected financial data of the Company. This historical
data should be read in conjunction with the Consolidated Financial Statements
and the related notes thereto in Item 8, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7. All
amounts except per share data are expressed in thousands.
 Year Ended December 312009
            
            
            2008
            
            
            2007
            
            
            2006 (1)
            
            
            2005Income
      Statement Data:Net
      sales
            
            
            97,737
            
            
            $
            99,143
            
            
            $
            97,402
            
            
            $
            90,805
            
            
            $
            84,766Cost
      of goods sold
            
            
            43,166
            
            
            
            46,847
            
            
            
            45,623
            
            
            
            41,694
            
            
            
            38,851Gross
      profit
            
            
            54,571
            
            
            
            52,296
            
            
            
            51,779
            
            
            
            49,111
            
            
            
            45,915Selling,
      general and administrative expenses
            
            
            33,033
            
            
            
            32,543
            
            
            
            31,019
            
            
            
            25,628
            
            
            
            22,090Income
      from operations
            
            
            21,538
            
            
            
            19,753
            
            
            
            20,760
            
            
            
            23,483
            
            
            
            23,825Interest
      expense (income) and other, net
            
            
            798
            
            
            
            867
            
            
            
            1,150
            
            
            
            (28
            )
            
            
            (485
            )Income
      from operations before
              provision
      for  income taxes
            
            
            20,740
            
            
            
            18,886
            
            
            
            19,610
            
            
            
            23,511
            
            
            
            24,310Provision
      for income taxes
            
            
            7,259
            
            
            
            6,705
            
            
            
            6,677
            
            
            
            8,732
            
            
            
            8,972Net
      income
            
            $
            13,481
            
            
            $
            12,181
            
            
            $
            12,933
            
            
            $
            14,779
            
            
            $
            15,338Basic
      earnings per share
            
            $
            1.71
            
            
            $
            1.52
            
            
            $
            1.46
            
            
            $
            1.65
            
            
            $
            1.71Basic
      weighted average common shares
              outstanding
            
            
            7,881
            
            
            
            7,999
            
            
            
            8,828
            
            
            
            8,954
            
            
            
            8,957Diluted
      earnings per share
            
            $
            1.69
            
            
            $
            1.51
            
            
            $
            1.44
            
            
            $
            1.61
            
            
            $
            1.65Diluted
      weighted average common shares
              outstanding
            
            
            7,966
            
            
            
            8,069
            
            
            
            8,982
            
            
            
            9,182
            
            
            
            9,312Cash
      dividends declared per common share
            
            $
            0.16
            
            
            $
            0.16
            
            
            $
            0.16
            
            
            $
            0.16
            
            
            $
            0.16As of December 312009
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006
            
            
            
            2005Balance
      Sheet Data:Working
      capital
            
            $
            22,752
            
            
            $
            23,493
            
            
            $
            25,491
            
            
            $
            25,982
            
            
            $
            28,186Total
      assets
            
            
            160,000
            
            
            
            159,576
            
            
            
            158,768
            
            
            
            156,588
            
            
            
            118,089Long-term
      debt (including current maturities)
            
            
            13,979
            
            
            
            29,349
            
            
            
            36,646
            
            
            
            21,810
            
            
            
            -Stockholders'
      equity
            
            
            120,865
            
            
            
            106,277
            
            
            
            103,338
            
            
            
            117,498
            
            
            
            103,564
 __________
 (1)
            On
      July 31, 2006 and August 18, 2006, the Company acquired substantially all
      of the assets of Microbrush, Inc. and Microbrush International Ltd.,
      respectively (collectively “Microbrush”).  The income statement
      data for the year ended December 31, 2006 includes results of operations
      for Microbrush, Inc. from July 31, 2006 through December 31, 2006 and
      Microbrush International Ltd. from August 18, 2006 through December 31,
      2006.  The balance sheet data as of December 31, 2006 includes
      the Microbrush acquisition.
 
 
 15
 
 
 
 Item
7. Management's Discussion and Analysis (MD&A) of Financial Condition and
Results of Operation (in thousands).
 
 General
  Young
Innovations, Inc. and its subsidiaries (“the Company”) develops, manufactures
and markets supplies and equipment used by dentists, dental hygienists, dental
assistants and consumers.  The Company's product offering includes
disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes,
dental micro-applicators, panoramic X-ray machines, moisture control products,
infection control products, dental handpieces (drills) and related components,
endodontic systems, orthodontic toothbrushes, flavored examination gloves,
children's toothbrushes, and children's toothpastes.
  The
Company’s manufacturing and distribution facilities are located in Missouri,
Illinois, California, Indiana, Texas, Wisconsin and Ireland.
  The
Company operates in one reporting segment, which is the development and
manufacture of a broad line of products marketed to dental
professionals.  The Company markets its products primarily in the
U.S.  The Company also markets its products in several international
markets, including: Canada, Europe, South America, Central America, and the
Pacific Rim.  International sales represented approximately 17%, 18%,
and 16% of the Company’s total net sales in 2009, 2008, and 2007,
respectively.
 
 Some of
the risk factors that affect the Company’s business and financial results are
discussed in “Item 1A: Risk Factors.”  We wish to caution the reader
that the risk factors discussed in “Item 1A: Risk Factors”, and those described
elsewhere in this report or our other Securities and Exchange Commission
filings, could cause our actual results to differ materially from those stated
in the forward-looking statements.
 
 16
 Critical
Accounting Policies
 
 The SEC
has requested that all registrants include in their MD&A a description of
their most critical accounting policies, the judgments and uncertainties
affecting the application of those policies, and the likelihood that materially
different amounts would be reported under different conditions using different
assumptions.  The SEC indicated that a “critical accounting policy” is
one which is both important to the portrayal of the company’s financial
condition and results and requires management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.  The Company believes
that the following accounting policies fit this definition:
 
 Revenue Recognition - Revenue
from the sale of products is recorded at the time title passes, generally when
the products are shipped, as the Company’s shipping terms are customarily FOB
shipping point.  Revenue from the rental of equipment to others is
recognized on a month-to-month basis as the revenue is earned.  The Company
generally requires payment within 30 days from the date of invoice and offers
cash discounts for early payment.  For certain acquired businesses that
offer different terms, the Company migrates these customers to the terms
referred above over time.
 
 The
Company offers discounts to its distributors if certain conditions are
met.  Customer allowances, volume discounts and rebates, and other
short-term incentive programs are recorded as a reduction in reported revenues
at the time of sale.  The Company reduces product revenue for the estimated
redemption of annual rebates on certain current product sales. Customer
allowances and rebates are estimated based on historical experience and known
trends.
 
 The
policy with respect to sales returns generally provides that a customer may not
return inventory except at the Company’s option, with the exception of X-ray
machines, which have a 90-day return policy.  Historically, the level of
product returns has not been significant.  The Company generally warrants
its products against defects, and its most generous policy provides a two-year
parts and labor warranty on X-ray machines.  The Company owns X-ray
equipment rented on a month-to-month basis to customers.  A liability for
the removal costs of the rented X-ray machines is capitalized and amortized over
four years.
 
 Allowance for doubtful
accounts – The Company has 41% of its December 31,
2009 accounts receivable balance with two large customers (see footnote 4 of the
notes to consolidated financial statements set forth in Item 8) with the
remaining balance comprised of amounts due from numerous customers, some of
which are international.  Accounts receivable balances are subject to
credit risk.  Management has reserved for expected credit losses,
sales returns and allowances, and discounts based upon past experience, as well
as knowledge of current customer information.  The Company believes
that its reserves are adequate.  It is possible, however, that the
accuracy of our estimation process could be impacted by unforeseen
circumstances.  The Company continuously reviews its reserve balance
and refines the estimates to reflect any changes in
circumstances.
 
 Inventory – The Company
values inventory at the lower of cost or market on a first-in, first-out (FIFO)
basis.  Inventory values are based upon standard costs, which
approximate actual costs.  Management regularly reviews inventory
quantities on hand and records a write-down for excess or obsolete inventory
based primarily on estimated product demand and other information related to the
inventory including planned introduction of new products and changes in
technology.  If demand for the Company’s products is significantly
different than management’s expectations, the value of inventory could be
materially impacted.  Inventory write-downs are included in cost of
goods sold.
 
 Goodwill and other intangible
assets – In accordance with Accounting Standards Codification
(“ASC”)  Topic 350, “Intangibles- Goodwill and Other,” goodwill and
other intangible assets with indefinite useful lives are reviewed by management
for impairment at least annually, or whenever events or changes in circumstances
indicate the carrying amount may not be recoverable.  If indicators of
impairment are present, the determination of the amount of impairment would be
based on management’s judgment as to the future operating cash flows to be
generated from the assets.  ASC Topic 350 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with ASC Topic 360, “Property, Plant, and
Equipment.”
 
 Stock compensation -In
accordance with ASC Topic 718, “Stock Compensation,” compensation cost is
recognized within the financial statements at the grant date based on the
award’s fair-value.  Stock option fair value is calculated by an
option pricing model, and is recognized as expense ratably over the requisite
service period. The option pricing models require judgmental assumptions
including: volatility, forfeiture rates, and expected option life. If any of the
assumptions used in the model change significantly, share-based compensation
expense may differ in the future from that recorded in the current
period.  The Company uses the Black-Scholes option pricing
model.  Compensation expense is also recognized for restricted stock
using the fair market value of our Common Stock at the date of
grant.
 17
 
 Assets Acquired and
Liabilities Assumed in Business Combinations– The Company periodically acquires
businesses.  All business acquisitions completed subsequent to January
1, 2009 are accounted for under the provisions of ASC Topic 805, “Business
Combinations,” which requires an entity to recognize the assets acquired,
liabilities assumed, contractual contingencies, and contingent consideration at
their fair value on the acquisition date.  It further requires that
acquisition-related costs be recognized separately from the acquisition and
expensed as incurred, restructuring costs generally expensed in the periods
subsequent to the acquisition date, and changes in accounting for deferred tax
asset valuation allowances and acquired income tax uncertainties after the
measurement period impact income tax expense.  The changes related to
income taxes also impact the accounting for acquisitions completed prior to the
effective date of ASC 805.  In addition, acquired in-process research
and development is capitalized as an intangible asset and amortized over its
estimated useful life.  Acquisitions completed prior to this adoption
were made using the purchase method.  Future acquisitions will be
impacted using the provisions of the new accounting
standard.
 18
   
 Results
of Operations
 
 The
following table sets forth, for the periods indicated, certain items from the
Company's statements of income expressed as a percentage of net
sales.
 Years Ended December 312009
              
              
              2008
              
              
              2007Net
      sales
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of goods sold
              
              
              44.2
              
              
              
              47.3
              
              
              
              46.8Gross
      profit
              
              
              55.8
              
              
              
              52.7
              
              
              
              53.2Selling,
      general and administrative expenses
              
              
              33.8
              
              
              
              32.8
              
              
              
              31.8Income
      from operations
              
              
              22.0
              
              
              
              19.9
              
              
              
              21.4Interest
      expense and other, net
              
              
              0.8
              
              
              
              0.9
              
              
              
              1.2Income
      from operations before provision
                for
      income taxes
              
              
              21.2
              
              
              
              19.0
              
              
              
              20.2Provision
      for income taxes
              
              
              7.4
              
              
              
              6.7
              
              
              
              6.9Net
      income
              
              
              13.8
              %
              
              
              12.3
              %
              
              
              13.3
              %
 
  19
  Year
Ended December 31, 2009, Compared to Year Ended December 31, 2008
 
 Net Sales - Net sales for the year
ended December 31, 2009 were $97,737, down 1.4% or $1,406 from $99,143 in the
prior year.  The sales decrease is attributable to the general
economic downturn that primarily impacted diagnostic product line sales which
declined approximately 20.1% from 2008.  We experienced solid demand
for our consumable products, which include preventive, infection control,
endodontic, micro-applicator and home care product lines, increasing modestly by
1.1% from 2008, which helped to offset the weak demand for diagnostic
sales.
  Gross Profit - Gross profit
increased $2,275 or 4.4%, to $54,571 in 2009 from $52,296 in 2008 or 55.8% of
sales in 2009 as compared to 52.7% 2008.  The increase in gross margin
is attributable to improved manufacturing processes, price increases, and
product mix.
 
 Selling, General and Administrative
Expenses (SG&A)- SG&A expenses increased by 490, or 1.5% to
$33,033 in 2009 from $32,543 in 2008.  Our SG&A as a percentage of
sales was 33.8% in 2009 as compared to 32.8% in 2008.  The increase is
attributable in part due to incentive compensation which is in-line with the
Company’s overall performance and stock-based compensation which reflects the
third year phase-in of expensing stock awards.
  Income from Operations - Income
from operations increased $1,785 or 9.0% in 2009 to $21,538 from to $19,753 in
2008.  The change was a result of the factors described
above.
  Interest Expense, net –Interest
expense, net decreased to $665 in 2009 compared to $1,332 in
2008.  The decrease was attributable to lower levels of debt
outstanding.
  Other (Income) Expense, net –The
Company generated other (income)/expense of $133 versus ($465) in 2008. The 2009
impact was primarily attributable to foreign exchange impact on inventory
purchases.  The largest impact in 2008 was attributable to a
beneficial impact on debt repaid from the Company’s Irish subsidiary in
2008.
  Provision for Income Taxes -
During the year ended 2009, the Company’s provision for income taxes increased
to $7,259 versus $6,705 in 2008.  The effective tax rate in 2009 was
35.0% compared to 35.5% in 2008.   The effective tax rate is
lower due to state law changes and rates.
 
 Year
Ended December 31, 2008, Compared to Year Ended December 31, 2007
 
 Net Sales - Net sales for the year
ended December 31, 2008 were $99,143, up 1.8% or $1,741 from $97,402 in the
prior year.  The sales increase reflects strong demand for the
Company’s consumable products, which were offset by weak performance in its
diagnostic product line.  The Company’s preventive, infection control,
micro-applicators and home care product lines, which are included in the
Company’s consumable products, posted solid growth in 2008.  In
addition, a weaker U.S. dollar provided a benefit to sales of approximately
$474.  The Company’s diagnostic product line posted disappointing
results.  On a full year basis, the diagnostic product line sales were
approximately $2,300 below the 2007 results.  The Company believes
this product line continues to be negatively effected by on-going economic
uncertainty, as the Company witnessed a significant increase in purchase
deferrals at the end of the year.
 
 Gross Profit - Gross profit
increased $517, or 1.0%, from $51,779 in 2007 to $52,296 in 2008.  The
additional gross profit was primarily a result of the increased net
sales.  Gross margin decreased to 52.7% in 2008 from 53.2% in 2007 as
a result of changes in product mix and a $130 reallocation of selling, general
and administrative expense into cost of goods sold. This was offset by reduction
in staffing levels and the benefits of facility consolidations the Company has
implemented over the past two years.
 
 Selling, General and Administrative
Expenses (SG&A)- SG&A expenses increased by $1,524, or 4.9%, to
$32,543 in 2008 from $31,019 in 2007.  Share-based compensation cost
totaled $1,442 in 2008 compared to $1,071 in 2007.  SG&A increased
primarily due to the full year impact of headcount additions in 2007 in addition
to increased equity compensation, incentive compensation and facility expenses
in accordance with the Company’s previously disclosed plans.  This was
offset by a $130 reallocation of SG&A expenses to cost of goods
sold.  As a percentage of net sales, SG&A expenses increased to
32.8% in 2008 from 31.8% in 2007 as a result of the factors explained
above.
 
 Income from Operations - Income
from operations in 2008 was $19,753 compared to $20,760 in 2007, a decrease of
4.9%.
 
 20
 Interest Expense, net –Interest
expense, net increased to $1,332 versus $1,109 in 2007.  The increase
was attributable to higher levels of debt partially offset by lower interest
rates in 2008 compared to 2007.  The increase in debt levels was
primarily related to the settlement of the earnout payment for the Microbrush
acquisition and repurchases of the Company’s stock.
 
 Other (Income) Expense, net –Other (income) expense, net increased to $(465) versus $41 in 2007. This
increase was primarily attributable to a foreign exchange impact on debt repaid
from the Company’s Irish subsidiary of approximately $300.
  Provision for Income Taxes -
During the year ended 2008, the Company’s provision for income taxes increased
to $6,705 versus $6,677 in 2007 as a result of an increase in the effective tax
rate.  The effective tax rate in 2008 was 35.5% compared to 34.1% in
2007.   The higher effective tax rate in 2008 is primarily
attributable to recognition of a tax benefit in 2007 associated with the lower
tax rate on earnings at the Company’s operations in Ireland due to lower local
tax rates and certain earnings being permanently reinvested there in
2007.
 
 
 Liquidity
and Capital Resources
 
 Sources
of Cash
 
 Historically,
the Company has financed its operations primarily through cash flow from
operating activities and, to a lesser extent, through borrowings under its
credit facility.  Net cash flow from operating activities was $22,480,
$22,465, and $20,440, in 2009, 2008 and 2007,respectively.  Operating cash flow in 2009 improved slightly
due increased net income, the reduction in inventories due to improved planning
and facility consolidations and a reduction of in-house financing of
equipment.  These improvements were somewhat offset by an increase in
accounts receivable principally by the timing of collections received in 2009
compared to 2008.  The timing of payments did not adversely impact the
aging of receivables.
 
 On
January 16, 2008, the Company transferred a majority of its X-ray equipment
loans to a third party for a cash payment of $3,519.  The Company
transferred $4,154 of the notes receivable portfolio for a purchase price of
$4,140.  Of the purchase price, $621 is subject to a recourse holdback
pool that has been established with respect to the limited recourse the third
party has on the loans.  On May 5, 2008, the Company transferred
additional X-ray equipment loans to a third party for a cash payment of
$235.  There is an additional $42 subject to a recourse holdback
pool.  As the transactions do not qualify as sales of assets under ASC
Topic 860 “Transfers and Servicing” the transactions have been treated as
financing and the loans remain on the Company’s balance sheet.  As the
third party receives payments on the transferred notes, the Company reduces the
corresponding notes receivable and secured borrowing balances.  As of
December 31, 2009, the residual amount of notes receivable transferred to a
third party was $1,501, of which $726 is classified as a short-term notes
receivable and $775 as a long-term notes receivable.  A corresponding
long-term and short-term liability has been recorded, net of the recourse
holdback pool of $267, on the Company’s balance sheet.
 
 The
Company maintains a credit agreement with a borrowing capacity of $60,000, which
expires in July 2012.  Borrowings under the agreement bear interest at
rates ranging from LIBOR + 2.0% to LIBOR + 2.5%, or Prime, depending on the
Company’s level of indebtedness.  Commitment fees for this agreement
range from .5% to 1.0% of the unused balance. The agreement is unsecured and
contains various financial and other covenants.  As of December 31,
2009, the Company was in compliance with all of these
covenants.  During 2009, the Company borrowed under the credit
facility to finance investments in facilities and for working capital
needs.  At December 31, 2009, the Company had $13,979 in outstanding
borrowings under this agreement and $46,021 available for borrowing. Management
believes through its operating cash flows as well as borrowing capabilities, the
Company has adequate liquidity and capital resources to meet its needs on a
short and long-term basis.
 
 Uses of
Cash
 Consistent with historical
spending, the Company’s uses of cash primarily relate to acquisition activity,
capital expenditures, dividend distributions to shareholders, and stock
repurchases.  Specific significant uses of cash over the three
years are as follows:
 
 21
 2009
 During
the year the Company invested $4,010 in property, plant and
equipment.  Significant expenditures were made to support facility
expansion and improvements in addition to investments in production
machinery.   We invested $1,657 to purchase dental distribution
rights for a new surface disinfectant, a non-compete agreement and core
technology which provides a manufacturing enhancement for our micro-applicator
products. Lastly, we funded a capital call for a private equity fund investment
for $300.
 
 The
Company also repurchased 19 shares of its Common Stock for
$270.  Quarterly dividends of $0.04 per share were paid March 12, June
11, September 14, and December 14, 2009, for a total payment of
$1,256.
 
 2008
 Net
capital expenditures for property, plant and equipment were $3,214 in
2008.  Significant capital expenditures included facility expansion
and improvements, production machinery and new equipment
purchases.  In May 2008, the Company paid $2,735 as an earnout payment
for certain performance targets achieved in the purchase of Microbrush Inc. and
Microbrush International, Ltd.  The Company also repurchased 505
shares of its Common Stock for $9,406.  Quarterly dividends of $0.04
per share were paid March 14, June 16, September 15, and December 15, 2008, for
a total payment of $1,281.
 
 2007
 Net
capital expenditures for property, plant and equipment were $7,279 in
2007.  Significant capital expenditures included the construction of a
distribution and manufacturing facility in Illinois, facility improvements, and
new equipment purchases.  The Company also repurchased 1,000 shares of
its Common Stock from trusts controlled by George E. Richmond, the Company’s
Vice Chairman and principal stockholder, for an aggregate purchase price of
$26,000.  In addition, the Company repurchased 53 shares of its Common
Stock for $1,285.  Quarterly dividends of $0.04 per share were paid
March 15, June 15, September 14, and December 14, 2007, for a total payment of
$1,391.
 
 
 
 Payments
      due by periodContractual
      Obligations
            
            Total
            
            
            Less than
              1 Year
            
            
            1-3 years
            
            
            4-5 years
            
            
            Beyond 5 yearsOperating
      Leases (including buildings)
            
            $
            1,281
            
            
            $
            508
            
            
            $
            773
            
            
            $
            ---
            
            
            $
            --Long-Term
      Debt
            
            $
            13,979
            
            
            $
            --
            
            
            $
            13,979
            
            
            $
            ---
            
            
            $
            --Liability
      for uncertain tax positions
            
            $
            95
            
            
            $
            95
            
            
            $
            --
            
            
            $
            ---
            
            
            $
            --Total
            
            $
            15,355
            
            
            $
            603
            
            
            $
            14,752
            
            
            $
            ---
            
            
            $
            --
 
 As of
December 31, 2009 and 2008, there were no relationships with any other
unconsolidated entities, financial partnerships, structured finance entities, or
special purpose entities that were established for the purpose of facilitating
off-balance-sheet arrangements or for other contractually narrow or limited
purposes.
 
 Recent
Financial Accounting Standards Board Statements
 
 See
footnote 22 to the Company’s audited consolidated financial statements set forth
in Item 8.
  22
  Item
7A.  Quantitative and Qualitative Disclosures About Market Risk
(amounts in thousands).
 
 Market
risks relating to the Company’s operations result primarily from changes in
interest rates and changes in foreign exchange rates.  From time to
time, the Company finances acquisitions, capital expenditures and its working
capital needs with borrowings under a revolving credit facility.  Due
to the variable interest rate feature on the debt, the Company is exposed to
interest rate risk.  Based on the Company’s average debt balance, a
theoretical 100-basis-point increase in interest rates would have resulted in
approximately $211, $317, and $258 ofadditional
interest expense in the years ended December 31, 2009, 2008 and 2007,
respectively.
 
 Sales of
the Company’s products in a given foreign country can be affected by
fluctuations in the exchange rate.  The Company sells approximately
17% of its products outside the United States.  Of these foreign
sales, 6% are denominated in Euros and 1% in Canadian dollars with the remainder
denominated in U.S. dollars.  The Company does not feel that foreign
currency movements have a material impact on its financial
statements.
 
 The
Company does not use derivatives to manage its interest rate or foreign exchange
rate risks.
 
 
 
  23
  Item
8. Financial Statements and Supplementary Data.
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 Board of
Directors and Stockholders
 Young
Innovations, Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of Young Innovations, Inc.
and subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended.  In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule. We also have
audited Young Innovations’ internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Young Innovations’ management is responsible for
these financial statements, the financial statement schedule, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying “Management’s Annual Report on Internal Control over Financial
Reporting.” Our responsibility is to express an opinion on these consolidated
financial statements and the financial statement schedule and an opinion on the
company's internal control over financial reporting based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
 
 A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 24
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Young Innovations, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Also in our opinion, Young Innovations, Inc. and subsidiaries maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2009, based on the criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
 
 
  Oak
Brook, Illinois
 March 12,
2010
 
  25
  Report of Independent
Registered Public Accounting Firm
 
 The Board
of Directors and Stockholders
 Young
Innovations, Inc.:
 
 We have
audited the accompanying consolidated statements of income, stockholders’ equity
and cash flows of Young Innovations, Inc. and subsidiaries for the year ended
December 31, 2007. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule for
2007.  These consolidated financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Young
Innovations, Inc. and subsidiaries for the year ended December 31, 2007, in
conformity with U.S. generally accepted accounting principles.  Also
in our opinion, the related financial statement schedule for 2007, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
 
 /s/ KPMG
LLP
 Chicago,
Illinois
 March 12,
2008
  
  
  26
  
 MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 The
management of Young Innovations, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting.  The
Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.  Internal control over financial reporting includes policies
and procedures that:
 
 ·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;
 ·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of
    America;
 ·
            provide
      reasonable assurance that receipts and expenditures of the Company are
      being made in accordance with authorization of management and directors of
      the Company; and
 ·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of assets that could have a
      material effect on the consolidated financial
  statements.
 
 Internal
control over financial reporting includes the controls themselves, monitoring
and testing, and actions taken to correct deficiencies as
identified.
 
 All
internal control systems, no matter how well designed, have inherent
limitations, including the possibility that controls can be circumvented or
overridden, and misstatements due to error or fraud may occur and not be
detected.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.  Further, conditions in our business
change over time, and, therefore, internal control effectiveness may vary over
time.
 
 The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009.  In making
this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework.  Management’s assessment included an evaluation of
the design of the Company’s internal control over financial reporting and
testing of the operational effectiveness of its internal control over financial
reporting.  Based on this assessment and the foregoing criteria,
management believes that, as of December 31, 2009, the Company’s internal
control over financial reporting is effective.  The effectiveness of
our internal control over financial reporting as of December 31, 2009 has
been audited by Crowe Horwath LLP, an independent registered public
accounting firm, as stated in their report, which is included in Item 8 of
this Report.
 
  27
  
 YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 (in
thousands, except per share data)
 
 December
      312009
              
              
              2008AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              67
              
              
              $
              667Trade
      accounts receivable, net of allowance for doubtful accounts of $232 and
      $425 in 2009 and 2008, respectively
              
              
              11,397
              
              
              
              10,421Inventories
              
              
              14,816
              
              
              
              16,486Other
      current assets
              
              
              4,849
              
              
              
              4,759Total current
    assets
              
              
              31,129
              
              
              
              32,333Property,
      plant and equipment, net
              
              
              33,668
              
              
              
              32,905Goodwill
              
              
              80,374
              
              
              
              80,334Other
      intangible assets
              
              
              12,097
              
              
              
              10,602Other
      assets
              
              
              2,732
              
              
              
              3,402Total assets
              
              $
              160,000
              
              
              $
              159,576Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              8,377
              
              
              $
              8,840Total current
      liabilities
              
              
              8,377
              
              
              
              8,840Long-term
      debt
              
              
              13,979
              
              
              
              29,349Long-term
      secured borrowing
              
              
              550
              
              
              
              1,281Deferred
      income taxes
              
              
              15,947
              
              
              
              13,829Other
      noncurrent liabilities
              
              
              282
              
              
              
              -Total liabilities
              
              
              39,135
              
              
              
              53,299Stockholders’
      equity:
                Common
      Stock, voting, $.01 par value, 25,000 shares authorized; 10,219 shares
      issued in 2009 and 2008
              
              
              102
              
              
              
              102Additional
      paid-in capital
              
              
              23,985
              
              
              
              25,336Retained
      earnings
              
              
              145,756
              
              
              
              133,531Common
      Stock in treasury, at cost; 2,294 and 2,452 shares in 2009 and 2008,
      respectively
              
              
              (49,090
              )
              
              
              (52,673
              )Accumulated
      other comprehensive (loss) income
              
              
              112
              
              
              
              (19
              )Total stockholders’
      equity
              
              
              120,865
              
              
              
              106,277Total liabilities and
      stockholders’ equity
              
              $
              160,000
              
              
              $
              159,576
   The
accompanying notes are an integral part of these statements.
  28
  
 YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF INCOME
 (in
thousands, except per share data)
 
 
 
 Years
      Ended December 312009
              
              
              2008
              
              
              2007Net
      sales
              
              $
              97,737
              
              
              $
              99,143
              
              
              $
              97,402Cost
      of goods sold
              
              
              43,166
              
              
              
              46,847
              
              
              
              45,623Gross
      profit
              
              
              54,571
              
              
              
              52,296
              
              
              
              51,779Selling,
      general and administrative expenses
              
              
              33,033
              
              
              
              32,543
              
              
              
              31,019Income
      from operations
              
              
              21,538
              
              
              
              19,753
              
              
              
              20,760Interest
      expense, net
              
              
              665
              
              
              
              1,332
              
              
              
              1,109Other
      (income) expense, net
              
              
              133
              
              
              
              (465
              )
              
              
              41Income
      from operations before provision for income taxes
              
              
              20,740
              
              
              
              18,886
              
              
              
              19,610Provision
      for income taxes
              
              
              7,259
              
              
              
              6,705
              
              
              
              6,677Net
      income
              
              $
              13,481
              
              
              $
              12,181
              
              
              $
              12,933Basic
      earnings per share
              
              $
              1.71
              
              
              $
              1.52
              
              
              $
              1.46Diluted
      earnings per share
              
              $
              1.69
              
              
              $
              1.51
              
              
              $
              1.44Basic
      weighted average shares outstanding
              
              
              7,881
              
              
              
              7,999
              
              
              
              8,828Diluted
      weighted average shares outstanding
              
              
              7,966
              
              
              
              8,069
              
              
              
              8,982
 
 The
accompanying notes are an integral part of these statements.
  29
  YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 (in
thousands)
 Common
                Stock
              Additional
                Paid-In
                Capital
              Retained
                Earnings
              Common
                Stock
      in
                Treasury
              Accumulated
      Other Comprehensive (Loss)
      Income
              Total
              
              Comprehensive
                IncomeBALANCE,
      January1, 2007
              102
              29,202
              111,089
              (22,939)
              44
              117,498Net
      income
              -
              -
              12,933
              -
              -
              12,933
              
              $  12,933Common
      Stock purchased
              -
              -
              -
              (27,285)
              -
              (27,285)Stock
      options exercised
              -
              (2,964)
              -
              3,231
              -
              267Issuance
      of restricted stock.
              -
              (2,398)
              -
              2,398
              -
              -Share-based
      compensation
              -
              1,071
              -
              -
              -
              1,071Excess
      income tax benefit from stock options
              -
              113
              -
              -
              -
              113Cash
      dividends ($0.16 per share).
              -
              -
              (1,391)
              -
              -
              (1,391)Foreign
      currency translation adjustments
              -
              -
              -
              -
              132
              132
              
              132Comprehensive
      income
              _______
              _______
              _________
              _________
              ___________
              __________
              
              $13,065BALANCE,
      December 31, 2007
              102
              25,024
              122,631
              (44,595)
              176
              103,338Net
      income
              -
              -
              12,181
              -
              -
              12,181
              
              $12,181Common
      Stock purchased
              -
              -
              -
              (9,438)
              -
              (9,438)Stock
      options exercised
              -
              (335)
              -
              589
              -
              254Issuance
      of restricted stock
              -
              (771)
              -
              771
              -
              -Share-based
      compensation
              -
              1,442
              -
              -
              -
              1,442Excess
      income tax (shortfall) benefit from stock options
              -
              (24)
              -
              -
              -
              (24)Cash
      dividends ($0.16 per share)
              -
              -
              (1,281)
              -
              -
              (1,281)Foreign
      currency translation adjustments
              -
              -
              -
              -
              (195)
              (195)
              
              (195)Comprehensive
      income
              _______
              _______
              _________
              _________
              ___________
              __________
              
              $11,986BALANCE,
      December 31, 2008
              102
              25,336
              133,531
              (52,673)
              (19)
              106,277Net
      income
              -
              -
              13,481
              -
              -
              13,481
              
              13,481Common
      Stock purchased
              -
              -
              -
              (270)
              -
              (270)Stock
      options exercised
              -
              (941)
              -
              1,859
              -
              918Issuance
      of restricted stock,net
              -
              (2,183)
              -
              1,994
              -
              (189)Share-based
      compensation
              -
              1,687
              -
              -
              -
              1,687Excess
      income tax (shortfall) benefit from stock options
              -
              86
              -
              -
              -
              86Cash
      dividends ($0.16 per share)
              -
              
              (1,256)
              
              -
              (1,256)Foreign
      currency translation adjustments
              -
              -
              -
              -
              131
              131
              
              131Comprehensive
      income
              _______
              _______
              _________
              _________
              ___________
              __________
              
              13,612BALANCE,
      December 31, 2009
              102
              23,985
              145,756
              (49,090)
              112
              120,865
 
  30
  
 YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 
 Years
      Ended December 312009
              
              
              2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              13,481
              
              
              $
              12,181
              
              
              $
              12,933Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              4,015
              
              
              
              4,013
              
              
              
              4,161Share
      based compensation expense
              
              
              1,687
              
              
              
              1,442
              
              
              
              1,071Deferred
      income taxes
              
              
              1,734
              
              
              
              1,898
              
              
              
              1,156Excess
      Tax Benefit from share exercises
              
              
              (86
              )
              
              
              --
              
              
              
              --Loss
      on private equity investment fund
                Changes
      in assets and liabilities, net of effects of acquisitions
                and
      divestitures:
              
              
              75
              
              
              
              89
              
              
              
              33Trade
      accounts receivable
              
              
              (851
              )
              
              
              2,542
              
              
              
              90Inventories
              
              
              1,707
              
              
              
              (2,142
              )
              
              
              (199
              )Other
      current assets
              
              
              (42
              )
              
              
              646
              
              
              
              1,548Other
      assets
              
              
              970
              
              
              
              1,530
              
              
              
              57Accounts
      payable and accrued liabilities
              
              
              (210
              )
              
              
              266
              
              
              
              (410
              )Total
      adjustments
              
              
              8,999
              
              
              
              10,284
              
              
              
              7,507Net cash flows from operating
      activities
              
              
              22,480
              
              
              
              22,465
              
              
              
              20,440Cash
      flows from investing activities:Payments
      for acquisitions of businesses and intangible assets, net of cash
      acquired
              
              
              (1,657
              )
              
              
              (2,735
              )
              
              
              --Purchases
      of property, plant and equipment
              
              
              (4,010
              )
              
              
              (3,214
              )
              
              
              (7,279
              )Purchases
      of private equity investment
              
              
              (300
              )
              
              
              (750
              )
              
              
              (150
              )Net cash flows from investing
      activities
              
              
              (5,967
              )
              
              
              (6,699
              )
              
              
              (7,429
              )Cash
      flows from financing activities:Payment
      of Deferred Finance Costs
              
              
              (158
              )
              
              
              --
              
              
              
              --Payments
      on long-term debt
              
              
              (60,334
              )
              
              
              (58,363
              )
              
              
              (34,824
              )Borrowings
      on long-term debt
              
              
              44,964
              
              
              
              51,066
              
              
              
              49,660Payments
      of long-term secured borrowings
              
              
              (1,217
              )
              
              
              (1,602
              )
              
              
              --Borrowings
      of long-term secured borrowings
              
              
              346
              
              
              
              3,754
              
              
              
              --Excess
      tax benefit/(deficit) from share exercises
              
              
              86
              
              
              
              (24
              )
              
              
              113Proceeds
      from stock options exercised
              
              
              918
              
              
              
              443
              
              
              
              283Purchases
      of treasury stock
              
              
              (459
              )
              
              
              (9,627
              )
              
              
              (27,299
              )Payment
      of cash dividends
              
              
              (1,256
              )
              
              
              (1,281
              )
              
              
              (1,391
              )Net cash flows from financing
      activities
              
              
              (17,110
              )
              
              
              (15,634
              )
              
              
              (13,458
              )Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (3
              )
              
              
              7
              
              
              
              (42
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              (600
              )
              
              
              139
              
              
              
              (489
              )Cash
      and cash equivalents, beginning of period
              
              
              667
              
              
              
              528
              
              
              
              1,017Cash
      and cash equivalents, end of period
              
              
              67
              
              
              $
              667
              
              
              $
              528Non-cash
      Disclosure – Acquired property, plant and equipment in accounts
      payable
              
              
              155
              
              
              
              --
              
              
              
              --
 
 The
accompanying notes are an integral part of these statements.
  31
  YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (in
thousands, except per share data)
 
 1.     ORGANIZATION:
 
  Young
Innovations, Inc. and its subsidiaries (“the Company”) develops, manufactures
and markets supplies and equipment used by dentists, dental hygienists, dental
assistants and consumers.  The Company's product offering includes
disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes,
dental micro-applicators, panoramic X-ray machines, moisture control products,
infection control products, dental handpieces (drills) and related components,
endodontic systems, orthodontic toothbrushes, flavored examination gloves,
children's toothbrushes, and children's toothpastes.
  The
Company’s manufacturing and distribution facilities are located in Missouri,
Illinois, California, Indiana, Texas, Wisconsin and Ireland.  Export
sales were approximately 17%, 18%, and 16% of total net sales for 2009, 2008,
and 2007 respectively.  Sales outside the U.S. are approximately 7% of
total sales in each of 2009, 2008, and 2007.
 
 2.     SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Principles
of Consolidation
 
 The
consolidated financial statements include the accounts of Young Innovations,
Inc. and its direct and indirect wholly owned subsidiaries.  All
significant intercompany accounts and transactions are eliminated in
consolidation.
 
 Use
of Estimates
 
 The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reported
period.  Actual results could differ from those
estimates.  Some of the more significant estimates include allowances
for doubtful accounts, inventory valuation reserves, rebate accruals, warranty
reserves, liabilities for potential incentive compensation and uncertain income
tax positions.
 
 Cash
and Cash Equivalents
 
 Cash and
cash equivalents include all highly liquid investments with an initial maturity
of three months or less.
 
 Inventories
 
 Inventories
are stated at the lower of cost (which includes material, labor and
manufacturing overhead) or net realizable value.  Inventory values are
based upon standard costs which approximate actual costs, determined by the
first-in, first-out (FIFO) method.
 
 Property,
Plant and Equipment
 
 Property,
plant and equipment are stated at cost.  Expenditures for repairs and
maintenance are charged to expense as incurred, and additions and improvements
that significantly extend the lives of assets are capitalized.  Upon
disposition, cost and accumulated depreciation are eliminated from the related
accounts, and any gain or loss is reflected in the statements of
income.  The Company provides depreciation using the straight-line
method over the estimated useful lives of respective classes of assets as
follows:
 
 Buildings and improvements 3 to 40
      yearsMachinery and equipment     3 to 10
      yearsEquipment rented to others4 to 15
  years
 
 32
 Goodwill
and Other Intangible Assets
 
 Goodwill
represents the excess of cost over fair value of net assets of businesses
acquired.  Goodwill and indefinite life intangible assets acquired in
a purchase business combination are not amortized, but are instead tested for
impairment at least annually in accordance with the provisions of ASC Topic
350.  Additionally, ASC Topic 350 requires that intangible assets with
estimable useful lives be amortized to their estimated residual values, and
reviewed for impairment in accordance with ASC Topic 360, “Property, Plant, and
Equipment”  Intangible assets primarily consist of trademarks, license
agreements, core technology, patents and patent applications, product formulas,
and supplier and customer relationships.  Trademarks have been
determined to have indefinite useful lives, and therefore the carrying value is
reviewed at least annually for recoverability in accordance with the
requirements of ASC Topic 350.  Other intangible assets are amortized
on a straight-line basis over the estimated useful lives of the assets,
generally between 5 and 40 years, and tested for impairment whenever conditions
indicate that an asset may be impaired.  The Company annually reviews
the remaining useful lives of its finite-lived intangible assets to assess the
appropriateness of their life.
 
 Impairment
of Long-Lived Assets
 
 The
Company assesses and measures any impairment of long-lived assets other than
goodwill and indefinite life intangibles in accordance with the provisions of
ASC Topic 360.  If facts and circumstances suggest that a long-lived
asset may be impaired, the carrying value is reviewed.  If this review
indicates that the carrying value of the asset will not be recovered, as
determined based on projected undiscounted cash flows related to the asset over
its remaining life, the carrying value of the asset is reduced to its estimated
fair value.  The Company has not incurred any material impairment of
long-lived assets during 2009, 2008 and 2007.
 
 Fair
Value of Financial Instruments
 
 Financial
instruments consist principally of cash, accounts receivable, notes receivable,
accounts payable and debt.  The estimated fair value of these
instruments approximates their carrying value.  Due to the short term
nature of the notes receivable, book value approximates fair value.
 
 Shipping
and Handling
 
 Shipping
and handling costs are included as a component of cost of
sales.  Shipping and handling costs billed to customers are included
in sales.
 
 Revenue
Recognition
 
 Revenue
from the sale of products is recorded at the time title passes, generally when
the products are shipped, as the Company’s shipping terms are customarily FOB
shipping point.  Revenue from the rental of equipment to others is
recognized on a month-to-month basis as the revenue is earned.  The Company
generally requires payment within 30 days from the date of invoice and offers
cash discounts for early payment.  For certain acquired businesses that
offer different terms, the Company migrates these customers to the terms
referred above over time.
 
 The
Company offers discounts to its distributors if certain conditions are
met.  Customer allowances, volume discounts and rebates, and other
short-term incentive programs are recorded as a reduction in reported revenues
at the time of sale.  The Company reduces product revenue for the estimated
redemption of annual rebates on certain current product sales. Customer
allowances and rebates are estimated based on historical experience and known
trends.
 
 The
policy with respect to sales returns generally provides that a customer may not
return inventory except at the Company’s option, with the exception of X-ray
machines, which have a 90-day return policy.  Historically, the level of
product returns has not been significant.  The Company generally warrants
its products against defects, and its most generous policy provides a two-year
parts and labor warranty on X-ray machines.  The Company owns X-ray
equipment rented on a month-to-month basis to customers.  A liability for
the removal costs of the rented X-ray machines is capitalized and amortized over
four years.
 
 The
Company adopted the disclosure requirements of ASC Topic 605, “Revenue
Recognition” (that is, gross versus net presentation) for tax receipts on the
face of their income statements. The scope of this guidance includes any tax
assessed by a governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer and may include,
but is not limited to, sales, use, value added, and some excise taxes (gross
receipts taxes are excluded). The Company presents such taxes on a net
basis.
 
 33
 Advertising
Costs
 
 Advertising
costs are expensed when incurred.  Advertising costs were
approximately, $3,381, $2,857, and $2,820, for 2009, 2008 and 2007,
respectively.
 
 Research
and Development Costs
 
 Research
and development costs are expensed when incurred and totaled $797, $796, and
$738 for 2009, 2008 and 2007, respectively.
 
 Interest
Expense, net
 
 Interest
expense, net includes interest paid related to borrowings on the Company’s
credit facility, as well as interest income earned on various investments and
notes receivable.  In 2009, 2008 and 2007, interest income totaled
$208, $367, and, $407, respectively, and interest expense totaled $873, $1,699,
and $1,516, respectively.
 
 Other
(Income) Expense, net
 
 Other
(income) expense, net includes foreign currency transaction gain/loss and other
miscellaneous income, all of which are not directly related to the Company’s
primary business.
 
 Income
Taxes
 
 The
Company accounts for income taxes under ASC Topic 740, “Income Taxes,” which
requires an asset and liability approach to accounting for and reporting income
taxes.  Deferred income taxes are provided for temporary differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities using rates which are expected to apply in the period the
differences are estimated to reverse.
 
 The
Company adopted provisions of ASC 740, “Income Taxes,” related to the accounting
for uncertain tax provisions at the beginning of the fiscal year 2007 with no
material change to the financial statements. Topic 740 requires the Company to
maintain a liability for underpayment of income taxes and related interest and
penalties, if any, for uncertain income tax positions. In considering the need
for and magnitude of a liability for uncertain income tax positions, the Company
must make certain estimates and assumptions regarding the amount of income tax
benefit that will ultimately be realized. The ultimate resolution of an
uncertain tax position may not be known for a number of years, during which time
the Company may be required to adjust these provisions, in light of changing
facts and circumstances.
 
 Share-Based
Compensation
 
 In
accordance with ASC Topic 718, “Compensation- Stock Compensation,” compensation
cost is recognized within the financial statements at the grant date based on
the award’s fair-value.  Stock option fair value is calculated by an
option pricing model, and is recognized as expense ratably over the requisite
service period.  The option pricing models require judgmental
assumptions, including:  volatility, forfeiture rates, and expected
option life.  The Company uses the Black-Scholes option pricing
model.  Compensation expense is also recognized for restricted stock
over the vesting period using the fair market value of our Common Stock at the
date of grant.
 
 Foreign
Currency Translation
 
 The
translation of financial statements into U.S dollars has been performed in
accordance with ASC Topic 830, “Foreign Currency Matters.”  The local
currency for all entities included in the consolidated financial statements has
been designated as the functional currency.  Non-U.S. dollar
denominated assets and liabilities have been translated into U.S. dollars at the
rate of exchange prevailing at the balance sheet date.  Revenues and
expenses have been translated at the weighted average of exchange rates in
effect during the year.  Translation adjustments are recorded in
accumulated comprehensive (loss) income.  Net currency transaction
(gains) losses included in other (income) expense, net were $106, $(434), and
$99 for 2009, 2008 and 2007, respectively.
 
 34
 Segment
Information
 
 The
Company operates as a single reportable operating segment. While management
monitors the revenue streams of various products, the identifiable segments'
operations are managed and financial performance is evaluated on a company-wide
basis. Accordingly, all of the Company’s products are considered by management
to be aggregated in one reportable operating segment.
 
 Supplemental
Cash Flow Information
 
 Cash
flows from operating activities include $5,417, $4,375, and $5,196 for the
payment of federal and state income taxes and $691, $1,846, and $1,539 for the
payment of interest related to borrowings on the Company’s credit facility
during 2009, 2008 and 2007, respectively.
 
 
 3.    
INVESTMENTS:
 
 On
February 21, 2006, the Company invested in a private equity investment
fund.  At December 31, 2009, the Company has an unfunded capital
commitment of up to $300.   As of December 31, 2009, the total
capital commitment paid by the Company was $1,950.  The investment is
accounted for under the equity method of accounting and included in other assets
on the Consolidated Balance Sheet.  Equity income (loss) is recorded
using a three-month lag.  The Company’s loss attributed to this
private equity investment was included in other (income) expense, net and
totaled $75, $89, and $33, in 2009, 2008, and 2007 respectively.
 
 4.     MAJOR
CUSTOMERS AND CREDIT CONCENTRATION:
 
 The
Company generates trade accounts receivable in the normal course of
business.  The Company grants credit to distributors and customers
throughout the world and generally do not require collateral to secure the
accounts receivable. The Company’s credit risk is concentrated among two
distributors that together accounted for 41% and 36% of accounts receivable at
December 31, 2009 and 2008, respectively.
 
 The
percentage of net sales made to major distributors of the Company’s continuing
operations were as follows:
 
 Years
      Ended
              December
      31Distributor
            
            2009
            
            
            2008
            
            
            2007Henry
      Schein, Inc.
            
            
            15.5
            %
            
            
            15.9
            %
            
            
            14.7
            %Patterson
      Companies, Inc.
            
            
            15.2
            %
            
            
            12.7
            %
            
            
            12.2
            %
 
 5.   
NOTES RECEIVABLE:
 
 The
Company offers various financing options to its equipment customers, which
includes notes payable to the Company.  The equipment is used to
secure the notes.  Total revenue from sales of equipment financed by
the Company was $49, $45, and $2,324 during 2009, 2008 and 2007,
respectively.  These transactions are recorded as a sale upon the
transfer of title to the purchaser, which generally occurs at the time of
shipment, at an amount equal to the sales price of non-financed
sales.  Interest on these notes is accrued as earned and recorded as
interest income.
 
 On
January 16, 2008, the Company transferred a majority of its X-ray equipment
loans to a third party for a cash payment of $3,519.  The Company
transferred $4,154 of the notes receivable portfolio for a purchase price of
$4,140.  Of the purchase price, $621 is subject to a recourse holdback
pool that has been established with respect to the limited recourse the third
party has on the loans.  On May 5, 2008, the Company transferred
additional X-ray equipment loans to a third party for a cash payment of
$235.  There is an additional $42 subject to a recourse holdback
pool.  As the transactions do not qualify as sales of assets under ASC
Topic 860, “Transfers and Servicing,” the transactions have been treated as
financing and the loans remain on the Company’s balance sheet.  As the
third party receives payments on the transferred notes, the Company reduces the
corresponding notes receivable and secured borrowing balances.  As of
December 31, 2009, the residual amount of notes receivable transferred to a
third party was $1,501, of which $726 is classified as a short-term notes
receivable and $775 as a long-term notes receivable.  A corresponding
long-term and short-term liability has been recorded, net of the recourse
holdback pool of $267, on the Company’s balance sheet.
 
 35
 Notes
receivable consist of the following:
 December
      312009
            
            
            2008Notes
      receivable, short-term
            
            $
            892
            
            
            $
            1,258Notes
      receivable, long-term
            
            
            890
            
            
            
            1,847Total
      notes receivable
            
            
            1,782
            
            
            $
            3,105
 Notes
receivable are included in other current assets and other assets in the
accompanying Consolidated Balance Sheets.
 
 Notes
bear interest at rates ranging from 0% to 11.5%, and have a weighted average
maturity of 21 months.  Interest income and expense related to the
notes are included in the Consolidated Income Statement caption “interest
expense, net.”
 
 6.     INVENTORIES:
 
 Inventories
consist of the following:
 December
      312009
            
            
            2008Finished
      products
            
            $
            6,905
            
            
            $
            7,925Work
      in process
            
            
            2,584
            
            
            
            2,603Raw
      materials and supplies
            
            
            5,327
            
            
            
            5,958Total
    inventories
            
            $
            14,816
            
            
            $
            16,486
 
 7.     PROPERTY,
PLANT AND EQUIPMENT:
 
 Property,
plant and equipment consist of the following:
 December
      312009
            
            
            2008Land
            
            $
            3,449
            
            
            $
            3,449Buildings
      and improvements
            
            
            21,550
            
            
            
            20,503Machinery
      and equipment
            
            
            27,560
            
            
            
            24,492Equipment
      rented to others
            
            
            5,464
            
            
            
            6,250Construction
      in progress
            
            
            1,527
            
            
            
            1,20559,550
            
            
            $
            55,899Less
      – Accumulated depreciation
            
            
            (25,882
            )
            
            
            (22,994
            )Total property, plant and
      equipment, net
            
            $
            33,668
            
            
            $
            32,905
 
 The
Company has no machinery and equipment under capital lease.  At
December 31, 2009, $1,586 of net property, plant and equipment was located
outside of the U.S.  Depreciation expense was $3,451, $3,481 and,
$3,630 for 2009, 2008, and 2007, respectively.
 
 36
 8.  OTHER
ASSETS:
 
 Other
assets consist of the following:
 December
      312009
            
            
            2008Notes
      receivable, long-term
            
            $
            890
            
            
            $
            1,847Investments
            
            
            1,670
            
            
            
            1,445Other
            
            
            172
            
            
            
            110Total other
    assets
            
            $
            2,732
            
            
            $
            3,402
 
 9.       GOODWILL
AND OTHER INTANGIBLE ASSETS:
 
 Goodwill
activity is as follows:
 December
      312009
            
            
            2008Balance,
      beginning of the year
            
            $
            80,334
            
            
            $
            77,511Payment
      of earnout consideration (see footnote 3)
            
            
            --
            
            
            
            2,735Foreign
      currency translation
            
            
            40
            
            
            
            88Balance,
      end of the year
            
            $
            80,374
            
            
            $
            80,334
 
 There
have been no changes in goodwill related to impairment losses or write-offs due
to sales of businesses during the years ended December 31, 2009, 2008 and
2007.
 
 Other
intangibles consist of the following:
 As
      of December 31, 2009Gross Carrying Amount
            
            
            Accumulated Amortization
            
            
            Net Carrying AmountAmortized
      intangible assetsLicense
      agreements
            
            $
            1,251
            
            
            $
            382
            
            
            $
            869Core
      technology
            
            
            739
            
            
            
            184
            
            
            
            555Patents
            
            
            2,265
            
            
            
            1,094
            
            
            
            1,171Product
      formulas
            
            
            430
            
            
            
            92
            
            
            
            338Customer
      relationships
            
            
            813
            
            
            
            479
            
            
            
            334Non-compete
      agreements
            
            
            519
            
            
            
            306
            
            
            
            213Supplier
      relationships
            
            
            399
            
            
            
            332
            
            
            
            67Total
            
            $
            6,416
            
            
            $
            2,869
            
            
            $
            3,547Intangible
      assets not subject to amortizationLicense
      Agreements
            
            $
            1,693
            
            
            
            
            
            
            $
            1,693Trademarks
            
            
            6,857
            
            
            
            
            
            
            
            6,857Total
      intangible assets
            
            $
            14,966
            
            
            $
            2,869
            
            
            $
            12,097
 
 As
      of December 31, 2008Gross Carrying Amount
            
            
            Accumulated Amortization
            
            
            Net Carrying AmountAmortized
      intangible assetsLicense
      agreements
            
            $
            1,200
            
            
            $
            305
            
            
            $
            895Core
      technology
            
            
            591
            
            
            
            153
            
            
            
            438Patents
            
            
            2,256
            
            
            
            885
            
            
            
            1,371Product
      formulas
            
            
            430
            
            
            
            82
            
            
            
            348Customer
      relationships
            
            
            813
            
            
            
            358
            
            
            
            455Non-compete
      agreements
            
            
            371
            
            
            
            254
            
            
            
            117Supplier
      relationships
            
            
            399
            
            
            
            278
            
            
            
            121Total
            
            $
            6,060
            
            
            $
            2,315
            
            
            $
            3,745Intangible
      assets not subject to amortizationTrademarks
            
            $
            6,857
            
            
            
            --
            
            
            $
            6,857Total
      intangible assets
            
            $
            12,917
            
            
            $
            2,315
            
            
            $
            10,602
 
 37
 During
the year ended December 31, 2009, the Company acquired dental distribution
rights for a new surface disinfectant recorded as a non-amortized license
agreement.  Additionally, the Company acquired core technology and a
non-compete agreement which provides a manufacturing enhancement for our
micro-applicator products.
 
 The costs
of other intangible assets with finite lives are amortized over their expected
useful lives using the straight-line method.  The amortization lives
are as follows: 10 to 20 years for patents, license agreements and core
technology; 40 years for product formulations; and 5 to 8 years for supplier and
customer relationships.  Non-compete agreements are amortized over the
length of the signed agreement.  The weighted average life for
amortizable intangible assets is 16 years.  Aggregate amortization
expense for the years ended December 31, 2009, 2008 and 2007 was $554, $532, and
$531, respectively.  The Company wrote off $137 of fully amortized
intangible assets in 2008.  Estimated amortization expense for each of
the next five years is as follows:
 
 
 For the year ending
12/31/10                                                                $544
 For the year ending
12/31/11                                                                $440
 For the
year ending
12/31/12                                                                $408
 For the
year ending
12/31/13                                                                $408
 For the
year ending
12/31/14                                                                $325
 
 
 
 10.     
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
 
 Accounts
payable and accrued liabilities consist of the following:
 December
      312009
            
            
            2008Accounts
      payable
            
            $
            2,454
            
            
            $
            4,122Accrued
      compensation and benefits
            
            
            1,725
            
            
            
            2,056Accrued
      taxes
            
            
            345
            
            
            
            176Accrued
      warranty
            
            
            292
            
            
            
            309Accrued
      expenses and other
            
            
            3,561
            
            
            
            2,177Total accounts payable and
      accrued liabilities
            
            $
            8,377
            
            
            $
            8,840
 
 11.      CREDIT
ARRANGEMENTS:
 
 On May
21, 2009, the Company renewed its credit facility.  The new credit
facility reduces the aggregate commitment from $75,000 to $60,000 and expires in
July 2012.  The Company has $46,021 available under the line of credit
at December 31, 2009.  Borrowings under the arrangement bear interest
at rates ranging from LIBOR + 2.00% to LIBOR +2.50% or Prime + .50% to Prime +
1.00%, depending on the Company’s level of indebtedness.  Commitment
fees for this arrangement range from .25% to .50% of the unused
balance.  Borrowings under the previous arrangement had interest rates
ranging from LIBOR +.75% to LIBOR +1.50% or Prime and commitment fees from .125%
to .15% of the unused balance.  The agreement is unsecured and
contains various financial and other covenants.  As of December 31,
2009 and December 31, 2008, the Company was in compliance with these
covenants.
 
 Long-term
debt was as follows:
 
 December
      312009
            
            
            2008Revolving
      credit facility due 2012 with a weighted-average interest rate of
      2.79%
            
            $
            13,979
            
            
            $
            29,349Less
      – current portion
            
            
            --
            
            
            
            --$
            13,979
            
            
            $
            29,349
 
 Aggregate
debt maturities are: 2009-$0; 2010-$0; 2011-$0; 2012-$13,979; and 2013
-$0.
 
 38
 12.      COMMON
STOCK:
 
 During
2009, the Company repurchased 19 shares of its Common Stock from various
stockholders for $270.  The Company also reissued 87 shares of its
Common Stock from treasury in conjunction with stock option exercises for
$1,859. The Company also issued 104 shares of its Common Stock from treasury
pursuant to restricted stock awards.
 
 During
2008, the Company repurchased 505 shares of its Common Stock from various
stockholders for $9,406.  The Company also reissued 36 shares of its
Common Stock from treasury in conjunction with stock option exercises for $805.
The Company also issued 34 shares of its Common Stock from treasury pursuant to
restricted stock awards.  In addition, the restrictions on 38
previously issued shares of Common Stock lapsed and 10 were repurchased by the
Company for $221.
 
 During
2007, the Company repurchased 53 shares of its Common Stock from various
stockholders for $1,285. The Company repurchased 1,000 shares from trusts
controlled by George E. Richmond, the Company’s Vice Chairman and principal
stockholder for $26,000. The Company reissued 27 shares of its Common Stock from
treasury in conjunction with stock option exercises for $283. The Company also
issued 128 shares of its Common Stock from treasury pursuant to restricted stock
awards. In addition, the restrictions on 2 previously issued shares of Common
Stock lapsed during 2007.
 
 
 13.      SHARE
BASED COMPENSATION:
 
 The
Company adopted the 1997 Stock Option Plan (the 1997 Plan) effective in November
1997 and amended the Plan in 1999 and 2001.  A total of 1,725 shares
of Common Stock were reserved for issuance under this plan which is administered
by the compensation committee of the Board of Directors (Compensation
Committee).  The Company adopted the 2006 Long-Term Incentive Plan
(the 2006 Plan) effective in May 2006.  The 2006 Plan is intended to
be a successor to the 1997 Plan.  A total of 700 shares were
authorized for grant under the 2006 Plan.  Awards under the 2006 Plan
may be stock options, stock appreciation rights, restricted stock, restricted
stock units, and other equity awards.
 
 Any
employee of the Company or its affiliates, any consultant whom the Compensation
Committee determines is significantly responsible for the Company’s success and
future growth and profitability, and any member of the Board of Directors, may
be eligible to receive awards under the 2006 Plan.  The purpose of the
2006 Plan is to: (a) attract and retain highly competent persons as employees,
directors, and consultants of the Company; (b) provide additional incentives to
such employees, directors, and consultants by aligning their interests with
those of the Company’s shareholders; and (c) promote the success of the business
of the Company.  The Compensation Committee establishes vesting
schedules for each option issued under the Plan.  Under the 1997 Plan,
outstanding options generally vested over a period of up to four years while
non-vested equity shares vested over five years.  Under the 2006 Plan,
outstanding options generally vest over a period of up to three years while
non-vested equity shares vest over one, two, three, four and five year
periods.  All outstanding options expire ten years from the date of
grant under the 1997 Plan and five years from the date of grant under the 2006
Plan.
 
 As of
January 1, 2006, the Company adopted ASC Topic 718, “Compensation- Stock
Compensation” which requires recognition of expense related to the fair value of
stock-based compensation awards. The Company elected the modified prospective
transition method as permitted by ASC Topic 718; accordingly, results from prior
periods have not been restated.  Under this transition method,
compensation cost must be recognized in the financial statements for all awards
granted after the date of adoption as well as for existing stock awards for
which the requisite service had not been rendered as of the date of
adoption.   Under the provisions of Topic 718, share-based
compensation cost is estimated at the grant date based on the award’s fair-value
as calculated by an option pricing model, and is recognized as expense ratably
over the requisite service period. The option pricing models require judgmental
assumptions including volatility, forfeiture rates, and expected option life. If
any of the assumptions used in the model change significantly, share-based
compensation expense may differ in the future from that recorded in the current
period.
 
 39
 Stock
Options
 During
the year ended December 31, 2009, 2008, and 2007, the Company recorded pre-tax
compensation expense of $222, $241, and $335 related to the Company’s stock
option shares.  As of December 31, 2009, there was approximately $84
of unrecognized compensation expense related to stock options, which will be
recognized over the weighted-average remaining requisite service period of 1.8
years.  The total aggregate intrinsic value of options exercised was
$769, $378, and $398 for the years ended December 31, 2009, 2008, and 2007,
respectively.  Payments received upon the exercise of stock options
were $918, $443, and $283 for the years ended December 31, 2009, 2008, and 2007,
respectively.  The related tax (shortfall) benefit realized related to
these exercises and restricted stock vesting was $86, $(24), and $113 for the
years ended December 31, 2009, 2008, and 2007, respectively.  The
Company issues shares from treasury upon share option exercises.
 
 The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model.  The weighted-average estimated
value of stock options granted during the year ended December 31, 2008 was $5.27
per share, respectively, using the following weighted-average
assumptions:
 
 2008Dividend
      yield (1)
            0.68%Expected
      volatility (2)
            28%Risk-free
      interest rate (3)
            2.35%Expected
      life (4)
            3.5
 
 (1)  Represents
cash dividends paid as a percentage of the share price on the date of
grant.
 (2)  Based
on historical volatility of the Company’s Common Stock over the expected life of
the options.
 (3)  Represents
the U.S. Treasury STRIP rates over maturity periods matching the expected term
of the options at the  time of grant.
 (4)  The
period of time that options granted are expected to be outstanding based upon
historical evidence.
 
 The
Company did not grant stock options during the year ended December 31,
2009.  The Company granted 863 shares in 2008 with a weighted-average
exercise price of $23.67 and 93 shares in 2007 with a weighted-average exercise
price of $29.15.  The following table summarizes stock option activity
for the year ended December 31, 2009:
 
 
 Options
            
            Shares
              (000)
            
            
            Weighted-Average
      Exercise Price
            
            Weighted-Average
      Remaining ContractualTerm
            
            Aggregate
              Intrinsic Value
              ($000)Outstanding
      at January 1, 2009
            
            
            807
            
            
            $
            24.59Granted
            
            
            --
            
            
            
            --Exercised
            
            
            (87
            )
            
            $
            10.53Forfeited
      or expired
            
            
            (8
            )
            
            $
            28.22Outstanding
      at December 31, 2009
            
            
            712
            
            
            $
            26.27
            
            3.42
      yrs
            
            $
            2,784Exercisable
      at December 31, 2009
            
            
            664
            
            
            $
            26.24
            
            3.48
      yrs
            
            $
            2,759
 
 The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the Company’s closing stock price on the
last trading day of the year ended December 31, 2009 and the exercise price,
multiplied by the number of in-the-money options).
 
 Non-Vested Equity
Shares
 Under the
2006 Plan, non-vested equity share units and restricted stock may be awarded or
sold to participants under terms and conditions established by the Compensation
Committee.  The Company calculates compensation cost for restricted
stock grants to employees and non-employee directors by using the fair market
value of its Common Stock at the date of grant and the number of shares issued.
This compensation cost is amortized over the applicable vesting
period.  During the year ended December 31, 2009 and 2008, the Company
recorded pre-tax compensation expense of $1,465, $1,201, and $903, respectively,
related to the Company’s non-vested equity shares.  As of December 31,
2009, there was approximately $2,702 of unrecognized compensation cost related
to non-vested equity shares which will be amortized over the weighted-average
remaining requisite service period of 2.7 years.  The Company issues
share grants from treasury.
 
 40
 The
following table details the status and changes in non-vested equity shares for
the year ended December 31,2009:
 
 Shares
              (000)
            
            
            Weighted-Average
              Grant
      Date
              Fair ValueNon-vested
      equity shares, January 1, 2009
            
            
            132
            
            
            $
            27.70Granted
            
            
            104
            
            
            $
            15.03Vested
            
            
            (45
            )
            
            $
            27.27Forfeited
            
            
            (3
            )
            
            $
            15.00Non-vested
      equity shares, December 31, 2009
            
            
            188
            
            
            $
            20.98
 
 14.
INCOME TAXES:
 
 Income
taxes are based on pretax earnings as follows:
 
 Years
      ended December 312009
            
            
            2008
            
            
            2007Domestic
            
            $
            18,306
            
            
            $
            16,427
            
            
            $
            17,259Foreign
            
            
            2,434
            
            
            
            2,459
            
            
            
            2,351Total
            
            $
            20,740
            
            
            $
            18,886
            
            
            $
            19,610
 
 The
components of the provision for income taxes were:
 
 
 
 
 
 Years
      ended December 312009
            
            
            2008
            
            
            2007Current
      :Federal
            
            $
            4,923
            
            
            $
            3,923
            
            
            $
            4,267Foreign
            
            
            (31
            )
            
            
            275
            
            
            
            339State
            
            
            633
            
            
            
            609
            
            
            
            915Total
      current
            
            
            5,525
            
            
            
            4,807
            
            
            
            5,521Deferred:Federal
            
            
            1,763
            
            
            
            1,856
            
            
            
            1,044Foreign
            
            
            20
            
            
            
            --
            
            
            
            (20
            )State
            
            
            (49
            )
            
            
            42
            
            
            
            132Total
      deferred
            
            
            1,734
            
            
            
            1,898
            
            
            
            1,156Provision
      for income taxes
            
            $
            7,259
            
            
            $
            6,705
            
            
            $
            6,677
 
 Reconciliation
of the provision for income taxes computed at the U.S. federal statutory rate to
the reported provision for income taxes:
 
 Years
      ended December 312009
            
            
            2008
            
            
            2007Income
      before provision for income taxes
            
            $
            20,740
            
            
            $
            18,886
            
            
            $
            19,610U.S.
      federal income tax rate
            
            
            35
            %
            
            
            35
            %
            
            
            35
            %Computed
      income taxes
            
            $
            7,259
            
            
            $
            6,610
            
            
            $
            6,864State
      income taxes, net of federal tax benefit
            
            
            380
            
            
            
            423
            
            
            
            681Foreign
      income taxes provision (benefit)
            
            
            --
            
            
            
            (29
            )
            
            
            (510
            )Deduction
      for Domestic Production Activities
            
            
            (335
            )
            
            
            (275
            )
            
            
            (269
            )Other
            
            
            (45
            )
            
            
            (24
            )
            
            
            (89
            )Total
      provision for income taxes
            
            $
            7,259
            
            
            $
            6,705
            
            
            $
            6,677
 
 41
 The
Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. With certain
exceptions, the Company is no longer subject to U.S. federal, state and local or
non-U.S. income tax examinations by tax authorities for years prior to 2005. The
Company adopted the provisions of Topic 740, “Accounting for Uncertainty in
Income Taxes – an interpretation included in ASC Topic 740” on January 1, 2007
with no material impact to the financial statements. A reconciliation of the
beginning and ending balance of unrecognized tax benefits is as
follows:
  2009
            
            
            2008
            
            
            2007Balance
      at January 1
            
            $
            101
            
            
            $
            111
            
            
            $
            146Additions
      based on tax positions related to the current year
            
            
            18
            
            
            
            15
            
            
            
            14Additions
      for tax positions of prior years
            
            
            6
            
            
            
            7
            
            
            
            7Reduction
      for tax positions of prior years
            
            
            (16
            )
            
            
            --
            
            
            
            (41
            )Settlements
            
            
            (14
            )
            
            
            (32
            )
            
            
            (15
            )Balance
      at December 31
            
            $
            95
            
            
            $
            101
            
            
            $
            111
 
 If
recognized in future periods, $95 of the total unrecognized tax benefits as of
December 31, 2009 would favorably affect the effective income tax rate. The
Company is not aware of any tax positions for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly increase
or decrease within the next twelve months.
 
 The
Company includes interest and penalties related to unrecognized tax benefits in
income tax expense.  Tax expense for the current year ended December
31, 2009 includes $6 of penalties and interest. The total amount of interest and
penalties recognized related to uncertain tax provisions at December 31, 2009
was approximately $27.
 
 
 
 
 Temporary
differences that gave rise to deferred income tax assets and
(liabilities):
 
 December
      312009
              
              
              2008Deferred
      income tax assets:Trade
      accounts receivable
              
              $
              158
              
              
              $
              164Inventories
              
              
              920
              
              
              
              999Stock-based
      compensation
              
              
              730
              
              
              
              566Accrued
      liabilities
              
              
              545
              
              
              
              390State
      tax loss benefit
              
              
              21
              
              
              
              96Other
              
              
              16
              
              
              
              20Total
      deferred income tax assets
              
              $
              2,390
              
              
              $
              2,235Deferred
      income tax liabilities:Property,
      plant and equipment
              
              $
              (2,758
              )
              
              $
              (2,560
              )Intangibles
              
              
              (12,413
              )
              
              
              (10,826
              )Inventories
              
              
              --
              
              
              
              (161
              )Tax
      on undistributed foreign earnings
              
              
              (675
              )
              
              
              (282
              )Currency
      Translation Adjustment
              
              
              (72
              )
              
              
              -Total
      deferred income tax liabilities
              
              
              (15,918
              )
              
              
              (13,829
              )Net
      deferred income tax liability
              
              $
              (13,528
              )
              
              $
              (11,594
              )
 Current
deferred income tax assets of $2,390 and $2,235 are included in other current
assets as of December 31, 2009 and 2008, respectively.
 
 42
 Applicable
U.S. income and foreign withholding taxes have not been provided on
approximately $100 of undistributed earnings of the Company's foreign subsidiary
for the year ended December 31, 2008. There were no undistributed earnings for
the year ended December 31, 2009.  These earnings are considered to be
permanently invested and, under certain tax laws, are not subject to taxes
unless distributed as dividends, loaned to the Company or a U.S. affiliate, or
if the Company sold its investment in the foreign subsidiary.  Tax on
such potential distributions would be partially offset by foreign tax credits.
If the earnings were not considered permanently invested, approximately $29 of
deferred income taxes would need to be provided for the year ended December 31,
2008.
 
 15.      SALES
OF EQUIPMENT RENTED TO OTHERS:
 
 Periodically,
customers who rent X-ray equipment from the Company elect to purchase the
equipment.  The Company recognizes revenue from the proceeds of such
sales and records as cost of goods sold the net book value of the
equipment.  Net sales of equipment consistent with this practice were
$787, $1,600, and $1,512 for 2009, 2008 and 2007, respectively, and gross profit
from these sales was $461, $868, and $782 for 2009, 2008 and 2007,
respectively.
 
 16.      EMPLOYEE
BENEFITS:
 
 The
Company has defined contribution 401(k) plans covering substantially all
full-time employees meeting service and age
requirements.  Contributions to the Plan can be made by an employee
through deferred compensation and through a discretionary employer
contribution.  Compensation expense related to this plan was $461,
$553, and $476 for 2009, 2008 and 2007, respectively. The Company also offers
certain healthcare insurance benefits for substantially all
employees.
 
 17.      RELATED-PARTY
TRANSACTIONS:
 
 The
Company paid consulting fees of $50 each year in 2009, 2008 and 2007, to a
corporation which is wholly owned by George E. Richmond, the Company’s Vice
Chairman and principal stockholder.   On February 25, 2010, the
Company terminated its consulting agreement with this corporation effective
December 31, 2009.
 
 The
Company has an employment agreement with George E. Richmond, the Company’s Vice
Chairman and principal stockholder, which paid him $50 each year in 2009, 2008
and 2007, to perform such duties as may be assigned to him by the Company’s
Board of Directors or Chief Executive Officer.  On February 25, 2010,
the Company increased his base salary from $50 to $100.
 
 The
Company paid fees of $85 in 2007 to a corporation which is wholly owned by
George E. Richmond, the Company’s Vice Chairman and principal stockholder, for
corporate use of an aircraft owned by that corporation. There were no such fees
in 2008 or 2009.
 
 In August
2007, the Company purchased 1,000 shares of its Common Stock from trusts
controlled by George E. Richmond, the Company’s Vice Chairman and principal
stockholder, for an aggregate purchase price of $26,000.
 
 18.      EARNINGS
PER SHARE:
 
 Basic
earnings per share (Basic EPS) is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the
period.  Diluted earnings per share (Diluted EPS) include the dilutive
effect of stock options and restricted stock, if any, using the treasury stock
method.  The following table sets forth the computation of basic and
diluted earnings per share:
 
 Years
      Ended December 312009
            
            
            2008
            
            
            2007Net
      income
            
            $
            13,481
            
            
            $
            12,181
            
            
            $
            12,933Weighted
      average shares outstanding for basic earnings per share
            
            
            7,881
            
            
            
            7,999
            
            
            
            8,828Dilutive
      effect of stock options and restricted stock
            
            
            85
            
            
            
            70
            
            
            
            154Weighted
      average shares outstanding for diluted earnings per share
            
            
            7,966
            
            
            
            8,069
            
            
            
            8,982Basic
      earnings per share
            
            $
            1.71
            
            
            $
            1.52
            
            
            $
            1.46Diluted
      earnings per share
            
            $
            1.69
            
            
            $
            1.51
            
            
            $
            1.44
 
 43
 19.
QUARTERLY FINANCIAL DATA (UNAUDITED):
 
 1st
      Qtr.
                
                
                2nd
      Qtr.
                
                
                3rd
      Qtr.
                
                
                4th
      Qtr.
                
                
                Year2009Net
      sales
                
                $
                23,764
                
                
                $
                24,637
                
                
                $
                24,805
                
                
                $
                24,531
                
                
                $
                97,737Gross
      profit
                
                
                13,310
                
                
                
                13,684
                
                
                
                13,948
                
                
                
                13,628
                
                
                
                54,571Income
      from operations
                
                
                4,995
                
                
                
                5,398
                
                
                
                5,650
                
                
                
                5,493
                
                
                
                21,538Net
      income
                
                
                3,155
                
                
                
                3,331
                
                
                
                3,474
                
                
                
                3,520
                
                
                
                13,481Basic
      earnings per share
                
                $
                .40
                
                
                $
                .42
                
                
                $
                .44
                
                
                $
                .44
                
                
                $
                1.71Diluted
      earnings per share
                
                $
                .40
                
                
                $
                .42
                
                
                $
                .43
                
                
                $
                .44
                
                
                $
                1.69
 1stQtr.
              
              
              2ndQtr.
              
              
              3rdQtr.
              
              
              4thQtr.
              
              
              Year2008Net
      sales
              
              $
              24,395
              
              
              $
              25,903
              
              
              $
              24,922
              
              
              $
              23,923
              
              
              $
              99,143Gross
      profit
              
              
              12,938
              
              
              
              13,791
              
              
              
              13,163
              
              
              
              12,404
              
              
              
              52,296Income
      from operations
              
              
              4,570
              
              
              
              5,152
              
              
              
              5,208
              
              
              
              4,823
              
              
              
              19,753Net
      income
              
              
              2,831
              
              
              
              3,101
              
              
              
              3,148
              
              
              
              3,101
              
              
              
              12,181Basic
      earnings per share
              
              $
              .34
              
              
              $
              .38
              
              
              $
              .40
              
              
              $
              .40
              
              
              $
              1.52Diluted
      earnings per share
              
              $
              .34
              
              
              $
              .38
              
              
              $
              .39
              
              
              $
              .40
              
              
              $
              1.51
  Full-year
2009 basic earnings per share do not equal the sum of the quarters due to
rounding.
 
 20.      COMMITMENTS
AND CONTINGENCIES:
 
 The
Company leases certain office and warehouse space, manufacturing facilities,
automobiles, and equipment under non-cancelable operating leases.  The
total rental expense for all operating leases was $527, $780, and $893 for 2009,
2008 and 2007, respectively.  Rental commitments amount to $508 for
2009, $493 for 2010,
$280 for 2011, $0 for 2012, and $0 for 2013.
 
 In
certain circumstances, the Company provides recourse for loans for equipment
purchases by customers.  Certain banks require the Company to provide
recourse to finance equipment for new dentists and other customers with credit
histories which are not consistent with the banks' lending criteria.  In
the event that a bank requires recourse on a given loan, the Company would
assume the bank’s security interest in the equipment securing the
loan.  As of December 31, 2009, 2008 and 2007, respectively,
approximately $579, $788, and $75 of the equipment financed with various lenders
were subject to such recourse.  Recourse on a given loan is generally
for the life of the loan.   Based on the Company’s past
experience with respect to these arrangements, it is the opinion of management
that the fair value of the recourse provided is minimal and not material to the
results of operations or financial position of the Company.
 
 The
Company and its subsidiaries from time to time are parties to various legal
proceedings arising in the normal course of business.  Management
believes that none of these proceedings, if determined adversely, would have a
material adverse effect on the Company’s financial position, results of
operations or liquidity.
 
 The
policy with respect to sales returns generally provides that a customer may not
return inventory except at the Company’s option, with the exception of X-ray
machines, which have a 90-day return policy.  Historically, the level
of product returns has not been significant.  The Company generally
warrants its products against defects, and its most generous policy provides a
two-year parts and labor warranty on X-ray machines.  The accrual for
warranty costs was $292 and $309 at December 31, 2009 and 2008,
respectively.  The following is a rollforward of the Company’s
warranty accrual:
 44
 
 December
      312009
            
            
            2008Balance,
      beginning of the year
            
            $
            309
            
            
            $
            317Accruals
      for warranties issued during the year
            
            
            243
            
            
            
            320Warranty
      settlements made during the year
            
            
            (260
            )
            
            
            (328
            )Balance,
      end of the year
            
            $
            292
            
            
            $
            309
 
 21.  SUBSEQUENT
EVENTS:
 
 On
January 25, 2010, the Board of Directors declared a quarterly dividend of $0.04
per share, payable March 15, 2010 to shareholders of record on February 15,
2010.
 
 On
February 11, 2010, the Compensation Committee of the Board of Directors issued
65.5 shares of restricted stock to certain employees.
 
  45
  
 22.      NEW
ACCOUNTING STANDARDS:
 
 In April
2009, the FASB further updated the fair value measurement standard to provide
additional guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased. Under the
revised guidance, which is now part of ASC 820, Fair Value Measurements and
Disclosures, an entity may conclude that transactions or quoted prices may not
be determinative of fair value, and may adjust the transactions or quoted prices
to arrive at the fair value of the asset or liability. This update was effective
for interim and annual reporting periods ending after June 15, 2009, and did not
have a material impact on the Company’s consolidated financial
statements.
 
 In
April 2009, the FASB issued new guidance related to the disclosure of the
fair value of financial instruments.  The new guidance, which is now part
of ASC 825, “Financial Instruments”, requires disclosures about fair value of
financial instruments for interim reporting periods of publicly-traded companies
as well as in annual financial statements. The provisions of the new guidance
were effective for interim periods ending after June 15, 2009. The adoption
of this statement did not impact the Company’s consolidated financial
statements.
 
 In
May 2009, the FASB issued new guidance for accounting for subsequent
events.  The new guidance, which is now part of ASC 855, “Subsequent
Events,” establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or available to be issued. An entity must recognize in the financial
statements the effects of all subsequent events that provide additional evidence
about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial statements. An entity
must also disclose the date through which subsequent events have been evaluated,
as well as whether that date is the date the financial statements were issued or
the date the financial statements were available to be issued. However, an
entity does not have to recognize subsequent events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after
the balance sheet date but before financial statements are issued or are
available to be issued. The provisions of the new guidance were effective for
interim or annual financial periods ending after June 15, 2009 and shall be
applied prospectively.
 
 In the
third quarter of 2009, the Company adopted the Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”). The ASC is the single
official source of authoritative, nongovernmental General Accepted Accounting
Principles “GAAP”, other than guidance issued by the SEC. On July 1, 2009, the
FASB’s Accounting Standards Codification changed the way that U.S. GAAP is
documented, updated, referenced, and accessed. Beginning on that date, ASC
officially became the single source of authoritative nongovernmental U.S. GAAP,
superseding existing FASB, American Institute of Certified Public Accountants
(AICPA), Emerging Issues Task Force (EITF), and related literature. Only one
level of authoritative GAAP now exists. All other literature is now considered
non-authoritative. The ASC was effective for interim or annual reporting periods
ending after September 15, 2009. The company adopted the codification during the
quarter ended September 30, 2009. The ASC did not have any impact on the
Company’s consolidated financial statements.
 
 In April
2008, the FASB issued certain accounting provisions now codified into ASC Topic
350, “Intangibles- Goodwill and Other.” Topic 350 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under Topic 350, “Intangibles-
Goodwill and Other”. Topic 350 is effective for fiscal years beginning after
December 15, 2008. The Company adopted this statement which did not have a
material impact on the Company’s consolidated financial statements.
 
 On
December 11, 2008, the FASB issued accounting provisions which are now
incorporated into ASC Topic 860, “Transfers and Servicing.” This FSP requires
additional disclosures by public entities with continuing involvement in
transfers of financial assets to special purpose entities and with variable
interests in VIEs. ASC Topic 860 was effective for reporting periods ending
after December 15, 2008.  The adoption of ASC Topic 860 did not
impact the Company’s consolidated financial statements or
disclosures.
 
 Effective
January 1, 2009, the FASB codified certain provisions into ASC Topic 805,
“Business Combinations”. Under Topic 805 an entity is required to recognize the
assets acquired, liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. It further requires
that acquisition-related costs are recognized separately from the acquisition
and expensed as incurred, restructuring costs generally is expensed in periods
subsequent to the acquisition date, and changes in accounting for deferred tax
asset valuation allowances and acquired income tax uncertainties after the
measurement period impact income tax expense.  The changes related to
income taxes also impact the accounting for acquisitions completed prior to the
effective date of Topic 805.  In addition, acquired in-process
research and development is capitalized as an intangible asset and amortized
over its estimated useful life. The adoption of Topic 805 changed the accounting
treatment for business combinations, generally on a prospective basis beginning
in the first quarter of 2009.  The Company adopted Topic 805 which did
not have a material impact on the Company’s consolidated financial
statements.
 
 46
 In
February 2007, the FASB issued ASC Topic 820, “Fair Value Measurements and
Disclosure”, which permits entities to choose to measure many financial
instruments and certain other items at fair value. The Company adopted Topic 820
as of the beginning of its 2008 fiscal year and the adoption did not impact the
Company’s consolidated financial statements, since it did not elect to measure
any financial instruments at fair value.
 Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
 
 None.
 
 Item
9A. Controls and Procedures.
  Evaluation
of Disclosure Controls and Procedures.
 The
Company’s Chief Executive Officer and President and Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by this
report, that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure and that the information
is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission’s rules and
forms.
 
 Management’s
Annual Report on Internal Control Over Financial Reporting.
 The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f).  The Company’s management assessed the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009.  In making this assessment, it used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control—Integrated Framework.  Management’s assessment included
an evaluation of the design of the Company’s internal control over financial
reporting and testing of the operational effectiveness of its internal control
over financial reporting.  Based on this assessment and the foregoing
criteria, management believes that, as of December 31, 2009, the Company’s
internal control over financial reporting is effective.
 
 Changes
in Internal Control Over Financial Reporting.
 There
have been no changes in our internal controls over financial reporting that
occurred during the quarterly period ended December 31, 2009 that have
materially affected, or that are reasonably likely to materially affect our
internal control over financial reporting.
 
 Attestation
Report of the Registered Public Accounting Firm
 
 The
attestation report of Crowe Horwath LLP, the Company’s independent registered
public accounting firm,  on the effectiveness of the Company’s
internal control over financial reporting is set forth under Item 8 in this
Annual Report on Form 10-K and is incorporated herein by reference.
 
 Item
9B.  Other Information.
 
 None.
  47
  
 PART
III
 
 Item
10. Directors, Executive Officers and Corporate Governance.
 
 Directors
and Executive Officers
 
 Certain
information required by Item 401 of Regulation S-K will be included under
the caption “Proposal 1: Election of Directors” in our 2010 Proxy Statement, and
that information is incorporated herein by reference.  The information
required by Item 405 of Regulation S-K will be included under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance” in our 2010 Proxy
Statement, and that information is incorporated herein by
reference.  Such proxy statement will be filed with the Commission
within 120 days after the close of the 2009 fiscal year.
 
 A listing
of and certain information about our executive officers is included in this
Annual Report on Form 10-K under Item 1 of Part I, and that information is
incorporated herein by reference.  No family relationships exist among
any of the executive officers, directors or director nominees.
 
 Audit
Committee
 
 The
information required by Item 407(d)(4) and (d)(5) of Regulation S-K will be
included under the caption “Audit Committee” in the 2010 Proxy Statement, and
that information is incorporated by reference herein.   Such
proxy statement will be filed with the Commission within 120 days after the end
of the 2009 fiscal year.
 
 Code
of Ethics
 
 We have
adopted a Code of Ethics applicable to all employees.  This code is
applicable to all of our directors and employees, including our principal
executive officer, principal financial officer and principal accounting
officer.  Our Code of Ethics is available on the Company’s website at
www.ydnt.com
under the subheading “Corporate Governance” under “Investor
Relations.”  We intend to post on our website any amendments to, or
waivers from, our Code of Ethics.   Shareholders may request a
copy of the Code of Ethics by writing to the Company’s Secretary at the
Company’s address.
 
 Item
11. Executive Compensation.
 
 The
information required by Item 402 of Regulation S-K will be included under
the captions “Compensation Discussion and Analysis,” “Named Executive Officer
Compensation,” including the tables entitled “Summary Compensation Table,”
“Grants of Plan-Based Awards in Fiscal Year 2009,” “Outstanding Equity Awards at
2009 Fiscal Year-end,” “Option Exercises and Stock Vested in Fiscal Year 2009,”
and “Employment Agreements and Potential Payments upon Termination or
Change-in-Control Arrangements” and “Potential Payments Upon Termination and
Following a Change-In-Control for Fiscal Year 2009,” “Non-employee Director
Compensation,” and “Director Compensation in Fiscal Year 2009” in our 2010 Proxy
Statement, which is incorporated herein by reference. Information required by
paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K will be included
under the captions “Compensation Committee Interlocks and Insider Participation”
and “Compensation Committee Report” in our 2010 Proxy Statement, which is
incorporated herein by reference. Such proxy statement will be filed with the
Commission within 120 days after the end of the 2009 fiscal year.
 
 
 Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
 
 Information
required by Items 201(d) and 403 of Regulation S-K will be included under the
captions “Equity Compensation Plan Information,” and “Securities Beneficially
Owned by Management and Principal Shareholders,” respectively, in the 2010 Proxy
Statement, and is incorporated herein by reference.  Such proxy
statement will be filed with the Commission within 120 days after the end of the
Company’s fiscal year.
 
 Item
13. Certain Relationships and Related Transactions, and Director
Independence.
 
 Information
required by Items 404 and 407(a) of Regulation S-K will be included under the
captions “Relationships and Related Person Transactions” and “Director
Independence,” respectively,  in the 2010 Proxy Statement, and is
incorporated herein by reference.  Such proxy statement will be filed
with the Commission within 120 days after the end of the 2009 fiscal
year.
 
 48
 Item
14.  Principal Accountant Fees and Services.
 
 Information
concerning this item will be included under the caption “Independent Registered
Public Accounting Firm” in the 2010 Proxy Statement, and is incorporated herein
by reference.  Such proxy statement will be filed with the Commission
within 120 days after the end of the 2009 fiscal year.
  49
  
 PART
IV
 
 Item
15. Exhibits and Financial Statement Schedules.
 
 (a)(1)
Financial Statements — Reference is made to Item 8 hereof:
 Consolidated Balance Sheets –
December 31, 2009 and 2008
 Consolidated Statements of Income –
Years ended December 31, 2009, 2008, and 2007
 Consolidated Statements of
Stockholders’ Equity – Years ended December 31, 2009, 2008, and
2007
 Consolidated Statements of Cash Flows
– Years ended December 31, 2009, 2008, and 2007
 Notes to Consolidated Financial
Statements – December 31, 2009
 
 (a)(2)
Financial Statement Schedule — The following financial statement schedule of the
Company is included for the years ended December 31, 2009, 2008, and
2007:
 
 Schedule
II Valuation and Qualifying Accounts.
 
 All other
financial statement schedules are omitted for the reason that they are not
required or are not applicable, or the required information is shown in the
financial statements or the notes thereto.
 
 (a)(3)
Exhibits — See the Exhibit Index for the exhibits filed as a part of or
incorporated by reference into this report.
 
 EXHIBIT
      INDEX
 
 EXHIBIT
 NUMBER
            DESCRIPTION
 
 3.1(a)
            Articles
      of Incorporation of the Company and Statement of
    Correction.
 
 3.2(r)
            Amended
      and Restated By-Laws of the Company, effective as of October 20,
      2008.
 
 4.1(o)
            Amended and
      Restated Credit Facilities Agreement, by and among Bank of America, N.A.,
      as Administrative Agent, and Bank of America, N.A. as Lender and the
      Letter of Credit Issuer, and the Other Lenders and the Company, dated
      November 28, 2006.
 
 4.2(q)
            Waiver
      and Amendment No. 1 to Amended and Restated Credit Facilities Agreement,
      by and among Bank of America, N.A., as Administrative Agent and a
      Lender,  and Other Lenders and the Company, dated October 1,
      2007.
 
 4.3(s)          Consent
and Amendment to Amended and Restated Credit Facilities Agreement dated May 7,
2008.
 
 4.4(d)
            Amendment
      No. 2 to Amended and Restated Credit Facilities Agreement, by and among
      Bank of America, N.A., As Administrative Agent and Lender, and Other
      Lenders and the Company, dated May 21,
2009.
 
 10.1(b)
            Amended
      and Restated 1997 Stock Option
Plan.
 
 10.2(b)
            Form
      of the Company’s Restricted Stock Award Agreement with schedule of
      grantees.
 
 10.3(f)
            Form
      of Indemnity Agreement entered into with each member of the Company's
      Board of Directors.
 
 10.4(e)
            Amended
      and Restated Employment Agreement dated May 6, 2009 by and between the
      Company and Alfred E. Brennan
 
 10.5(e)
            Amended
      and Restated Employment Agreement dated May 6, 2009 by and between the
      Company and Arthur L. Herbst, Jr.
 
 10.6(e)
            Amended
      and Restated Employment Agreement dated May 6, 2009 by and between the
      Company and George E. Richmond.
 
 50
 10.7(e)
            Amended
      and Restated Employment Agreement dated May 6, 2009 by and between the
      Company and Daniel J. Tarullo.
 
 10.8(g)
            Employment
      Agreement dated July 20, 2009 by and between the Company and Julia A.
      Heap.
 
 10.9
      (k)2006
      Long-Term Incentive Plan.
 
 10.10(n)   
      Form of Non-employee Director Stock Option under the Amended and Restated
      1997 Stock Option Plan.
 
 10.11(n)     Form
      of Employee Stock Option under the Amended and Restated 1997 Stock Option
      Plan.
 
 10.12(p)    
      Form of Restricted Stock Agreement under the 2006 Long-Term Incentive
      Plan.
 
 10.13(p)    
      Form of Stock Option Grant Notice and Stock Option Agreement under the
      2006 Long-Term Incentive Plan.
 
 21.1(t)
            Subsidiaries
      of the Company.
 
 23.1(t)
            Consent
      of Independent Registered Public Accounting
  Firm.
 
 23.2(t)
            Consent
      of Independent Registered Public Accounting
  Firm.
 
 24.1           Power
of Attorney (included on Signature page).
 
 31.1(t)
            Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
      Sarbanes-Oxley Act of 2002.
 
 31.2(t)
            Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of
      Sarbanes-Oxley Act of 2002.
 
 32.1(t)
            Certification
      pursuant to 18.U.S.C. Section 1350 as adopted pursuant to Section 906 of
      Sarbanes-Oxley Act of 2002.
 
 (a)
            Filed
      as an Exhibit to the Company’s Registration Statement No. 333-34971 on
      Form S-1 and incorporated herein by
reference.
 (b)
            Filed
      as an Exhibit to the Company’s Report on Form 10-K filed on March 25, 2002
      and incorporated herein by
reference.
  (d)
            Filed
      as an Exhibit to the Company’s Report on Form 8-K filed May 28, 2009 and
      incorporated herein by reference.
 (e)
            Filed
      as an exhibit to the Company’s Report on Form 8-K filed on May 12, 2009
      and incorporated herein by
reference.
 (f)
            Filed
      as an Exhibit to the Company's Report on Form 10-Q filed on August 14,
      2002 and incorporated herein by
reference.
 (g)
            Filed as an Exhibit to the Company's Report on 8-K filed on July 22, 2009
      and incorporated herein by
reference.
  (k)
            Filed
      as part of the Company's Definitive Proxy Statement, Schedule 14A, on
      April 7, 2006 and incorporated herein by
  reference.
 
 
 51
 (n)
            Filed
      as an Exhibit to the Company’s Report on Form 10-K filed on March 7, 2005
      and incorporated herein by
reference.
 (o)
            Filed
      as an Exhibit to the Company’s Report on Form 8-K filed on December 1,
      2006 and incorporated herein by
reference.
 (p)
            Filed
      as an Exhibit to the Company’s Report on Form 8-K filed on February 23,
      2007 and incorporated herein by
reference.
 (q)
            Filed
      as an Exhibit to the Company’s Report on Form 10-Q filed on November 8,
      2007 and incorporated herein by
reference.
 (r)
            Filed
      as an Exhibit to the Company’s Report on Form 8-K filed on October 22,
      2008 and incorporated herein by
reference.
 (s)
            Filed
      as an Exhibit to the Company’s Report on Form 10-Q filed on August 8, 2008
      and incorporated herein by
reference.
 (t)
            Filed
      herewith.
 
 
 (b)
            Exhibits
 
 The exhibits filed as part of this
Annual Report on Form 10-K are as specified in Item 15(a)(3)
herein.
 
 (c)
            Financial
      Statement Schedules
 
 The
      financial statement schedule filed as part of this Annual Report on Form
      10-K is as specified in Item 15(a)(2)
herein.
 
 
 
 
  52
  
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 Dated:
March 12, 2010
 
 YOUNG
INNOVATIONS, INC.
 
 By:      /s/ Alfred E. Brennan,
Jr.
 Alfred E. Brennan, Jr.
 
 
 Each
person whose signature appears below constitutes and appoints George E. Richmond
and Alfred E. Brennan, Jr. his true and lawful attorneys-in-fact and agents,
each acting alone, with full powers of substitution and re-substitution for him
or her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments to this report, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
            Title
            Date/s/ ALFRED E. BRENNAN,
      JR.
              Alfred
      E. Brennan, Jr.
            Chairman,
      Chief Executive Officer, Director
              (Principal Executive
      Officer)
            March
      12, 2010/s/ GEORGE E.
      RICHMOND
              George
      E. Richmond
            Vice
      Chairman, Director
            March
      12, 2010/s/ ARTHUR L. HERBST,
      JR.
              Arthur
      L. Herbst, Jr.
            President
      and Chief Financial Officer
              (Principal
      Financial and Accounting Officer)
            March
      12, 2010/s/ BRIAN F.
      BREMER
              Brian
      F. Bremer
            Director
            March
      12, 2010/s/
      DR. PATRICK J. FERRILLO
              Dr.
      Patrick J. Ferrillo
            Director
            March
      12, 2010/s/ RICHARD J.
      BLISS
              Richard
      J. Bliss
            Director
            March
      12, 2010
 
 
 
 
   53
  YOUNG
INNOVATIONS, INC. AND SUBSIDIARIES
 
 SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
 YEARS
ENDED DECEMBER 31, 2008, 2007 and 2006
 (IN
THOUSANDS)
 
 
 ADDITIONSBALANCE
      BEGINNING OF YEAR
              CHARGED
      TO COSTS AND EXPENSES
              DEDUCTIONS
              BALANCE
      AT END OF YEARAllowance
      for doubtful Receivables2007.
      . . . .
              478
              89
              37
              5302008. . . . .
              530
              40
              145
              4252009. . . . .
              425
              206
              399
              232